The Impact of Foreign Investors on the Risk-Taking of Japanese Firms

31 Pages Posted: 6 Jul 2011 Last revised: 13 Jul 2011

See all articles by Pascal Nguyen

Pascal Nguyen

Neoma Business School; University of Technology Sydney (UTS); Financial Research Network (FIRN)

Date Written: May 28, 2011

Abstract

Consistent with a bank-centered governance system, Japanese firms exhibit an exceptionally low level of performance variability. The increased involvement of foreign investors motivated by shareholder value is thus likely to have triggered a major shift in their risk-taking behavior. My results confirm this hypothesis as the volatility of stock returns, market-to-book value, and profitability is found to have significantly increased with the level of foreign ownership. Controlling for endogeneity provides higher point estimates supporting anecdotal evidence that foreign investors have targeted firms taking unusually low risk. Overall, the evidence highlights the considerable impact that this category of investors can make on a firm’s decisions and, by extension, on its performance.

Keywords: foreign investors, monitoring, risk taking,volatility, heteroskedasticity test

JEL Classification: G30, G32, G34

Suggested Citation

Nguyen, Pascal, The Impact of Foreign Investors on the Risk-Taking of Japanese Firms (May 28, 2011). Available at SSRN: https://ssrn.com/abstract=1879871 or http://dx.doi.org/10.2139/ssrn.1879871

Pascal Nguyen (Contact Author)

Neoma Business School ( email )

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University of Technology Sydney (UTS) ( email )

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HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=4415

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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