Outsourcing Active Ownership in Japan

This paper examines active ownership in Japan by an equity ownership service, Governance for Owners Japan (GOJ). GOJ engages with portfolio companies on behalf of Japanese and international institutional investors. The engagements are exclusively private and are not observable to the public. We use the stated objectives of the interventions to measure the incidence of success, and the stock market response to the public announcement of engagement outcomes. We find a high rate of success and average cumulative abnormal returns (CARs) of about 2.6 percent between -5 and +5 trading days of an event date in response to outcome announcements. Since there is more than one outcome per engagement, the average CARs per engagement is 6.5 percent. Target companies were more likely to adopt recommendations proposed in GOJ's private engagements than in a sample of public activist engagements over a similar period.