Corporate Governance and Corporate Behavior in Japan: The Consequences of Stock Options and Corporate Diversification (SpringerBriefs in Economics)

This book carefully examines the effects of changes in the corporate governance structure on corporate behavior or company performance, using micro-data from listed companies in Japan. The author found that in Japan the introduction of stock options had neither a positive impact on profitability nor the negative side effects of promoting risk-taking behaviors. Furthermore, he found that corporate diversification and division of corporations showed negative impacts on profitability. The corporate governance structure of Japan has exhibited a large change from the second half of the 1990s to the present. There have been institutional reforms involving enterprise law, such as the introduction of stock options and the removal of the ban on holding companies. With respect to the ownership structure of a company, discernible trends are that the equity holdings of financial institutions and business corporations have fallen while the presence of foreign stockholders has risen. These trends are often pointed out as signs that the Japanese corporate governance structure has been approaching the American model and that this will energize Japanese firms. The author contradicts common academic theories, however, and concludes that the formation of the corporate governance which emphasizes the agency problem between shareholders and corporate managers is inadequate. He suggests that an institutional arrangement for a corporate governance system that values a variety of stakeholders' interests is greatly needed and concludes that perspectives on maximizing surplus values for various stakeholders and distributing the surpluses appropriately among the stakeholders will become increasingly important for the purpose of managing corporations. Preface 6 Acknowledgments 7 Contents 8 About the Author 10 1 Introduction 11 Abstract 11 References 13 2 Institutional Characteristics and Effects of a Stock Option 14 Abstract 14 2.1 What Is a Stock Option? 15 2.2 The Development of the Stock Option System in Japan 15 2.3 Stock Option Studies on Japanese Firms 20 References 22 3 Empirical Analysis of a Stock Option 23 Abstract 23 3.1 Estimation of Stock Option Value 24 3.1.1 Basic Model 24 3.1.2 Estimation Approach 25 3.1.3 Estimation Results 26 3.2 Has the Profitability of Companies Improved by the Introduction of a Stock Option? 29 3.3 Did the Introduction of a Stock Option Induce Risk-Taking Firm Behaviors? 33 References 38 4 Related Studies of Corporate Diversification 39 Abstract 39 4.1 Theories of Corporate Diversification 40 4.2 Negative Effects of Corporate Diversification 40 4.3 Reexamination of the Diversification Discount 41 4.4 Corporate Governance and Corporate Diversification 42 References 43 5 Corporate Diversification of Japanese Firms 45 Abstract 45 5.1 How Can I Determine the Actual Conditions of Corporate Diversification? 45 5.2 Corporate Diversification and Division of Corporations in Japanese Firms 49 Reference 53 6 Empirical Analyses of Corporate Diversification and Division of Corporations 54 Abstract 54 6.1 Hypotheses 55 6.2 The Empirical Analysis: A Comparison Between Consolidated Financial Statements and Non-consolidated Financial Statements for Corporations Which Have Conducted Corporate Diversification and Division of Corporations 56 6.3 The Empirical Analysis: A Comparison Between Firms with Consolidated Subsidiaries and Those Without 62 6.4 The Empirical Analysis: Analysis Based on Segmental Information 66 6.5 The Empirical Analysis: Analysis of Pure Holding Companies 74 References 82 7 Main Results and Their Interpretation 83 Abstract 83 References 86 Appendix Tables: Basic Statistics for Major Parameters of the Black-Scholes Model 87 Appendix A: All Listed Firms 87 Appendix B: Listed Firms of the First Section of the Tokyo Stock Exchange 89 Appendix C: Listed Firms of the Second Section of the Tokyo Stock Exchange 91 Appendix D: Listed Firms of the Mothers Section of the Tokyo Stock Exchange 92 Front Matter....Pages i-xi Introduction....Pages 1-3 Institutional Characteristics and Effects of a Stock Option....Pages 5-13 Empirical Analysis of a Stock Option....Pages 15-30 Related Studies of Corporate Diversification....Pages 31-36 Corporate Diversification of Japanese Firms....Pages 37-45 Empirical Analyses of Corporate Diversification and Division of Corporations....Pages 47-75 Main Results and Their Interpretation....Pages 77-80 Back Matter....Pages 81-88