Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers

33 Pages Posted: 18 Oct 2017

See all articles by Naoshi Ikeda

Naoshi Ikeda

Tokyo Institute of Technology

Kotaro Inoue

School fo Engineering, Tokyo Institute of Technology

Sho Watanabe

Tokyo Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: August 28, 2017

Abstract

In this study, we empirically test “quiet life hypothesis,” which predicts that managers who are subject to weak monitoring from the shareholders avoid making difficult decisions such as risky investment and business restructuring with Japanese firm data. We employ cross-shareholder and stable shareholder ownership as the proxy variables of the strength of a manager’s defense against market disciplinary power. We examine the effect of the proxy variables on manager-enacted corporate behaviors and the results indicate that entrenched managers who are insulated from disciplinary power of stock market avoid making difficult decisions such as large investments and business restructures. However, when managers are closely monitored by institutional investors and independent directors, they tend to be active in making difficult decisions. Taken together, our results are consistent with managerial quiet life hypothesis.

Keywords: Corporate governance, Cross shareholding, Ownership structure, Quiet life, Risk taking

JEL Classification: G31, G32, G34

Suggested Citation

Ikeda, Naoshi and Inoue, Kotaro and Watanabe, Sho, Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers (August 28, 2017). Available at SSRN: https://ssrn.com/abstract=3054934 or http://dx.doi.org/10.2139/ssrn.3054934

Naoshi Ikeda

Tokyo Institute of Technology ( email )

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Kotaro Inoue (Contact Author)

School fo Engineering, Tokyo Institute of Technology ( email )

2-12-1 Ookayama, Muguro-ku
Tokyo, 152-8552
Japan

Sho Watanabe

Tokyo Institute of Technology

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

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