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U.S.-Style Investor Activism in Japan: The First Ten Years

57 Pages Posted: 22 Mar 2010 Last revised: 22 Oct 2010

Yasushi Hamao

Center on Japanese Economy and Business; University of Southern California - Marshall School of Business - Finance and Business Economics Department

Kenji Kutsuna

Kobe University - Graduate School of Business Administration

Pedro P. Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

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Date Written: October 21, 2010

Abstract

This paper provides a comprehensive look at the first decade of U.S.-style investor activism in Japan, the second largest stock market in the world with many underperforming and cash-rich firms. Barriers to shareholder activism have historically been high but we document an unprecedented wave of block acquisitions by hedge fund and other investors with a total of 916 stakes reported in the period between 1998 and 2009. There is, on average, a positive stock price reaction to the announcement of activist investments, particularly for events involving hostile funds. The long-run returns on activism are positive only for events involving hostile funds. We find that activists have forced target firm managers to increase their payouts compared to peer firms, and there is some evidence of change in corporate governance. Finally, after 2006 there was a widespread adoption of "poison pills" by firms, particularly those targeted by activists, and a subsequent drop in investor activism. Our paper shows how U.S.-style activist investors are responsible for the "import" of corporate governance mechanisms from the U.S. into a foreign market.

Keywords: Corporate governance, shareholder activism, hedge funds, Japan

JEL Classification: G34

Suggested Citation

Hamao, Yasushi and Kutsuna, Kenji and Matos, Pedro P., U.S.-Style Investor Activism in Japan: The First Ten Years (October 21, 2010). Marshall School of Business Working Paper No. FBE 06-10; 5th Annual Conference on Empirical Legal Studies Paper; ECGI - Finance Working Paper No. 290/2010. Available at SSRN: https://ssrn.com/abstract=1573422 or http://dx.doi.org/10.2139/ssrn.1573422

Yasushi Hamao

Center on Japanese Economy and Business ( email )

3022 Broadway
New York, NY 10027
United States
310-717-0503 (Phone)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
310-717-0503 (Phone)

Kenji Kutsuna

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501, 657-8501
Japan

HOME PAGE: http://www.b.kobe-u.ac.jp/en/staff/kutsuna.html

Pedro Matos (Contact Author)

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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