Corporate Governance and Firm Value in Japan: Evidence from 1985 to 1998

Posted: 11 Aug 2003

See all articles by Takato Hiraki

Takato Hiraki

Tokyo University of Science - School of Management

Hideaki Inoue

Nippon Life Insurance Company

Akitoshi Ito

Hitotsubashi University Business School

Fumiaki Kuroki

NLI Research Institute

Hiroyuki Masuda

Nissay Information Technology Co, Ltd.

Abstract

In this paper, we examine how alternative corporate governance mechanisms work in Japan, using the panel data on the equity ownership and bank loans of manufacturing companies listed on the Tokyo Stock Exchange (TSE) first section over the 1985-1998 period. First, we find that the main bank borrowing is negatively related to firm value until the early 1990s, which is consistent with the view of the main bank extracting surplus from client firms. Second, we show that the cross shareholdings between the main bank and client firms are negatively related to firm value during the sample period. Third, our results on the inter-corporate shareholdings show that one-way shareholdings tend to be positively related to firm value, but cross shareholdings tend to be negatively related to firm value when their effects are statistically significant. Finally, we find that managerial ownership is monotonically and positively related to firm value. The result of a simple check suggests that the endogeneity of managerial ownership did not drive our finding at least for the second subperiod (1992-1998).

JEL Classification: G32, G34

Suggested Citation

Hiraki, Takato and Inoue, Hideaki and Ito, Akitoshi and Kuroki, Fumiaki and Masuda, Hiroyuki, Corporate Governance and Firm Value in Japan: Evidence from 1985 to 1998. Pacific-Basin Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=416941

Takato Hiraki

Tokyo University of Science - School of Management ( email )

6-3-1 NiiJuku Katsushika-Ku
Tokyo, 125-8585
Japan
+81-480-21-7611 (Phone)
+81-480-21-7654 (Fax)

Hideaki Inoue

Nippon Life Insurance Company ( email )

Tokyo
Japan

Akitoshi Ito (Contact Author)

Hitotsubashi University Business School ( email )

2-1-2 Hitotsubashi
Chiyoda-ku, Tokyo, 101-8439
Japan

Fumiaki Kuroki

NLI Research Institute ( email )

Tokyo, 100-0006
Japan

Hiroyuki Masuda

Nissay Information Technology Co, Ltd. ( email )

1-1-1 Yuraku-cho, Chiyoda-ku
Tokyo 100-0006
Japan

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