Stewardship Activities and Agency Problems after Japanese Corporate Governance Reform

Abstract

Japanese corporate governance reform is implemented by an introduction of corporate governance code and stewardship code, in which stewardship activities by institutional investors play an important role in terms of reduction of agency cost. In this report, stewardship activities are focused based upon the idea that agency theory, newly introduced as principal cost theory, could support a conceptual framework of governance reform and analyzed that as an important function for agency cost reduction. In order to make governance reform more effective, I make several proposals, cost sharing of stewardship activities by asset owners and full disclosure of those activities based on investment strategies, such as actively managed strategies and/or passively managed ones, for stewardship activities of both engagement and proxy voting, especially by index fund managers.

Keywords: corporate governance, stewardship, agency cost, engagement, index funds

JEL Classification: D20, D21, D22, D23, D24, G23, G30, G32, G34, K22, L20, L21, L22, N20, N25