Unnatural Selection of Outside Directors: Consequences of Japanese Corporate Governance Reforms
European Financial Management, forthcoming
Posted: 10 Jan 2020 Last revised: 4 Apr 2022
Date Written: October 20, 2019
Abstract
We examine how Japanese listed companies increase the number of outside directors to comply with corporate governance reforms. We find that, after the reforms, there has been an increase in the number of cases in which former company auditors (kansayaku) become outside directors in the same company. This trend is more pronounced for hitherto non-compliant firms with insufficient outside directors before the reforms. Moreover, the firms appointing company auditors as outside directors tend to change their corporate structures to maintain existing practices and minimize compliance costs. Our findings imply that Japanese reforms have increased the unnatural selection of outside directors.
Keywords: corporate governance reform, corporate governance code, outside director, board structure, institutional theory
JEL Classification: G34, G38, M10
Suggested Citation: Suggested Citation