Agency Theory in Practice: A Qualitative Study of Hedge Fund Activism in Japan

16 Pages Posted: 10 Jul 2014

See all articles by John Buchanan

John Buchanan

University of Cambridge - Centre for Business Research (CBR)

Dominic Heesang Chai

University of Manchester - Manchester Business School; University of Cambridge - Centre for Business Research (CBR)

Simon Deakin

University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law

Multiple version iconThere are 2 versions of this paper

Date Written: July 2014

Abstract

Manuscript Type. Empirical. Research Question/Issue. We look at the reaction to hedge fund activism of managers and shareholders in Japanese firms and explore the implications of our findings for agency theory. Research Findings/Insights. Confrontational shareholder activism of the kind practiced by American and British hedge funds in Japan during the 2000s failed to gain acceptance from Japanese investors and managers or to alter the internal focus of corporate governance practices in Japanese firms. Theoretical/Academic Implications. We use a qualitative research design which treats the standard agency‐theoretical model of the firm as only one possible approach to understanding corporate governance, to be tested through empirical research, rather than as an assumption built into the analysis. We find that Japanese managers do not generally regard themselves as the shareholders' agents and that, conversely, shareholders in Japanese firms do not generally behave as principals. Our findings suggest that the standard principal‐agent model may be a weak fit for firms in certain national contexts. Practitioner/Policy Implications. For policymakers, our work demonstrates the importance of understanding the distinctive features of national‐level corporate governance arrangements. For practitioners, it cautions against the view that national corporate governance systems are converging around the model of shareholder primacy and directs attention to the need for investors to be informed of the diversity of practices across different countries.

Keywords: Corporate Governance, Agency Theory, Japan, Hedge Funds, Shareholder Activism

Suggested Citation

Buchanan, John and Chai, Dominic H. and Deakin, Simon F., Agency Theory in Practice: A Qualitative Study of Hedge Fund Activism in Japan (July 2014). Corporate Governance: An International Review, Vol. 22, Issue 4, pp. 296-311, 2014. Available at SSRN: https://ssrn.com/abstract=2464363 or http://dx.doi.org/10.1111/corg.12047

John Buchanan

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Dominic H. Chai

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Simon F. Deakin

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

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