Does Passive Ownership Affect Corporate Governance? Evidence from the Bank of Japan’s ETF Purchasing Program

50 Pages Posted: 2 Aug 2021 Last revised: 31 Jan 2022

See all articles by Masumi Sai

Masumi Sai

Hitotsubashi University, Graduate School of Commerce and Management, Students

Kazuo Yamada

Ritsumeikan University - College of Business Administration

Date Written: January 31, 2022

Abstract

We show that passive ownership can reduce agency costs and affect corporate governance using novel data of a central bank’s ETF purchasing program as a source of a cross-sectional variation of passive ownership. The empirical findings document that firms with high passive ownership are more likely to remove anti-takeover defenses, adopt executive stock options, have a high ratio of outside directors and female board members, and have a small board size. Furthermore, we find that passive ownership deconstructs the historical ownership structure of Japanese listed companies, such as cross-shareholding. These results support the view that passive investment can mitigate agency costs. We also find that the passive investment also affects the shareholder meetings: firms with high passive ownership avoid busy meeting days. Unlike the U.S. finding, the passive investment does not stimulate activist funds. The main findings are supported with several alternative definitions of passive ownership.

Keywords: Passive Investment, Corporate Governance, Unconventional Monetary Policy

JEL Classification: G02, G12

Suggested Citation

Sai, Masumi and Yamada, Kazuo, Does Passive Ownership Affect Corporate Governance? Evidence from the Bank of Japan’s ETF Purchasing Program (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=3894249 or http://dx.doi.org/10.2139/ssrn.3894249

Masumi Sai

Hitotsubashi University, Graduate School of Commerce and Management, Students ( email )

Tokyo
Japan

Kazuo Yamada (Contact Author)

Ritsumeikan University - College of Business Administration ( email )

2-150 Iwakura
Ibaraki, Osaka 5678570
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
178
Abstract Views
818
rank
229,026
PlumX Metrics