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Economics Journal of Financial
Economics 38 (1995) 29-58
Firm performance, corporate governance, and top executive turnover in Japan
Jun-Koo Kang”, Anil Shivdasani*,b
aDepartment of
Finance and
Insurance, University of Rhode Island, Kingston, RI 02881, USAbEli Broad College of Business, Michigan State
代写留学生论文University, East Lansing, MI 48824, USA
(Received November 1993; final version received July 1994)
AbstractWe examine the role of corporate governance mechanisms during top executiveturnover in Japanese corporations. Consistent with evidence from U.S. data, the likelihoodof nonroutine turnover is significantly related to industry-adjusted return on assets,excess stock returns, and negative operating income, but is not related to industry
performance. The sensitivity of nonroutine turnover to earnings performance is higherfor firms with ties to a main bank than for firms without such ties. Outside succession inJapan is more likely for firms with large shareholders and a main bank relationship. Wedocument performance improvements subsequent to nonroutine turnover and outside
succession.
Key words: Management turnover; Japanese corporate governance; Main bank system
JEL classification: G32; L14
1. Introduction
The Japanese corporate governance system offers an interesting contrast tothat in the United States. In the United States, several internal and external*Corresponding author.
We thank David Mayers, Kevin Murphy (the referee), Rent Stub, Ralph Walkling, Terry Ursacki,Jerold Warner (the editor), Marc Zenner, and seminar participants at Michigan State University,Ohio State University, University of Calgary, and the Mitsui Life Symposium at the University ofMichigan for valuable comments. Kang acknowledges financial support from the University ofRhode Island CBA Research grant, and Shivdasani acknowledges financial support from an AlbertaEnergy Corporation Summer Fellowship and the Social Sciences and Humanities Research Council
of Canada.
0304-405X/95/$09.50 0 1995 Elsevier Science S.A. All rights reserved
SSDI 0304405X9400807 D
30 J.-K. Kang, A. ShivdasanilJournal qf Financial Economics 38 (1995) 29-58governance mechanisms provide incentives for corporate managers to maximizeshareholder wealth. These include equity ownership by top executives, monitoringby institutional and large shareholders, outside directors on the board, andthe threat of external takeovers.’ In contrast, in Japan, equity ownership bymanagement is considerably less, large shareholders are sometimes viewed aspassive, the frequency of outside directors is lower, and takeovers are extremely
rare. These differences raise the question of whether there exist other systems inJapan that serve as mechanisms for internal and external governance. Forexample, some authors, such as Aoki (1990) and Sheard (1989), argue that themain bank system in Japan plays an important role in corporate governanceand disciplines corporate managers in the event of poor performance.In this paper, we examine the importance of alternative corporate governancemechanisms in Japan. Our objective is to provide some systematic evidence onthe extent to which different governance forces discipline poorly performing
managers. Top executive succession events provide a natural setting to examinethe functioning of governance mechanisms because the decision to removea poorly performing CEO is both extreme and highly visible. While
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