Institutional Ownership and Firm Performance under Stakeholder-Oriented Corporate Governance

Hideaki Sakawa,Naoki Watanabel

doi:10.3390/su12031021

Hideaki Sakawa, Naoki Watanabel

Open Access

https://doi.org/10.3390/su12031021

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Journal: Sustainability	Publication Date: Jan 31, 2020
Citations: 55	License type: CC BY 4.0

Affiliation: Nagoya City University

Abstract

This study aimed to reveal the role of institutional investors with shareholder-oriented scopes in a stakeholder-oriented economy such as Japan. With financial globalization, the increasing number of institutional shareholders in Japanese corporations enables us to investigate whether their shareholder-oriented perspectives are conducive to taking on effective monitoring roles under stakeholder-oriented corporate governance. This study’s sample included large listed firms of the TOPIX 500 in Japan during 2010-2016. Using 2924 firm-year observations, the effect of institutional investors on firm performance was analyzed to test the role of institutional investors in stakeholder-oriented corporate governance. Our study showed that the monitoring role of institutional shareholders, or foreign shareholders, functions effectively in Japanese corporations. In addition, we showed that the monitoring roles of these are expected to strengthen firms through higher growth opportunities. These results implied that institutional shareholders contribute to enhancing sustainable firm performance and constructing sustainable corporate governance mechanisms in a stakeholder-oriented system.

Highlights

In recent decades, the number of shares owned by institutional shareholders has grown rapidly due to financial globalization [1]
This study focused on Japanese corporations to examine how institutional shareholders affect corporate performance
Institutional shareholders were divided into foreign and domestic institutional shareholders and the results suggest that these effectively function as monitors in stakeholder-oriented systems

Summary

Introduction

The number of shares owned by institutional shareholders has grown rapidly due to financial globalization [1]. This trend is being investigated in countries with shareholder- or market-oriented systems, such as in the United States, and in countries that have stakeholder-oriented systems, such as Japan. Institutional shareholders are defined as block shareholders who are able to supervise and monitor the firms in which they have ownership. Their monitoring activities can be efficiently performed because they have financial incentives due to their stakes in these companies [3]. Several studies analyze empirical questions about the monitoring role of institutional ownership (IO) on corporate performance [5]

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Discussion

Conclusion