Governance through Shame and Aspiration: Index Creation and Corporate Behavior

58 Pages Posted: 31 Jul 2017 Last revised: 21 Nov 2018

See all articles by Akash Chattopadhyay

Akash Chattopadhyay

University of Toronto - Rotman School of Management

Matthew Shaffer

Harvard University, Harvard Business School, Students

Charles C. Y. Wang

Harvard Business School

Date Written: November 1, 2018

Abstract

After decades of de-prioritizing shareholders' economic interests and low corporate profitability, Japan introduced the JPX-Nikkei400 in 2014. The index highlighted the country's “best-run" companies by annually selecting the 400 most profitable of its large and liquid firms. We find that managers competed for inclusion in the index by significantly increasing ROE, and they did so at least in part due to their reputational or status concerns. The ROE increase was predominantly driven by improvements in margins, which were in turn partially driven by cutting R&D intensity. Our findings suggest that indexes can affect managerial behavior through reputational or status incentives.

Keywords: JPX-Nikkei 400 index; Corporate governance; Index inclusion; Reputation incentives; Status incentives; Return on equity; Capital efficiency; Social norms

JEL Classification: G18, G34, G38, G41, L51, M14, M52

Suggested Citation

Chattopadhyay, Akash and Shaffer, Matthew and Wang, Charles C. Y., Governance through Shame and Aspiration: Index Creation and Corporate Behavior (November 1, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 567/2018; Harvard Business School Accounting & Management Unit Working Paper No. 18-010; Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3010188 or http://dx.doi.org/10.2139/ssrn.3010188

Akash Chattopadhyay

University of Toronto - Rotman School of Management ( email )

105 St George Street
Toronto, Ontario M5S 3G8
Canada

Matthew Shaffer

Harvard University, Harvard Business School, Students ( email )

Cambridge, MA
United States

Charles C. Y. Wang (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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