Stock Ownership and Corporate Performance in Japan: Corporate governance by institutional investors

Author Name SHINADA Naoki  (Development Bank of Japan, Inc.)
Creation Date/NO. January 2010 10-E-005
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Faced with an aging population and a low fertility rate, Japan finds it increasingly essential to shift diminishing national savings into productive investment in order to preserve the dynamism of its economy. Stock investment by institutional investors is important for corporate financing, and shareholder involvement in governance influences corporate growth. Using panel data for Japan's listed companies and foreign investors' votes on shareholder proposals, this paper demonstrates: (1) an increase in stock ownership by foreign investors' had a positive effect on productivity growth, but it has not recently improved other corporate performance indices, and (2) foreign investors' strong attitudes towards voting had a positive effect on productivity growth. This paper concludes that external stakeholders' active, qualitative involvement in corporate governance and their quantitative involvement by increasing stock ownership are key to improving corporate growth.