Analysis of Instability of Investment and Ownership Structure in Japanese Listed Firms

Abstract

Investment of firms is affected by not only fundamentals factors, but liquidity constraint, ownership or corporate structure. Information structure between manager and owner is a significant factor to decide the level of investment, and deviation of investment from optimal condition. In this paper we analyze a role of information transfer between owner and manager by using Reputation model of Ottaviani and Sfrensen (2006). The reputation model between manager and owner suggest that the separate of ownership and management may induce the deviation of investment, and indicate that governance structure is important to reduce it. The conclusion suggest that the deviation become small when governance structure resolve the asymmetric information. In this paper we estimate the deviation of investment using investment function, and investigate the relation of the derivation and ownership structure or corporate finance using data of Japanese listed firms (1982-2000). In empirical test the following results is induced. (i) The concentration of ownership reduces the deviation of investment. (ii) The deviation becomes smaller when main shareholder is government or individual. (iii) On the contrary it becomes larger when main shareholder is bank or foreign institution. These results suggested that the asymmetry of information between owner and manager bring the instability of investment. In addition we could not observe the effect of bank system to reduce instability of investment.