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
Date Written: January 31, 2022
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: Suggested Citation