We examine how foreign and domestic portfolio investors, both classified into money managers, invest in Japanese firms over the sample period of 1985–1998. We propose the agency-familiarity hypothesis to explain investment behavior of these institutional investors focusing on the two firm-level variables: market capitalization and export ratios. Both types of institutional investors over-invest in familiar firms measured in firm size while each shows opposite preference patterns with respect to the export ratios. The foreign investors become more export-firm oriented in the second-half sample and the domestic orientation of the domestic institutional investors becomes statistically significant during the same second-half. Because of the location difference of their client investors, the compositions of familiar firms are different between these two types with respect to the firm’s export activities. Home bias at the firm level in terms of the sensitivity to the export ratio is evident for both types of investors, especially, in more recent years, although equity home bias at the country level has been gradually mitigated. Based on these macro- and micro-level results, we conclude that the investment behavior of money managers is more consistent with the agency-familiarity explanation than the information-based explanation regardless of their nationalities. Copyright Springer Science + Business Media, Inc. 2003foreign investors, home bias, institutional investors, investor familiarity, money managers, the Japanese stock market,
Considering that the ownership structure of Japanese corporations has changed dramatically in the 1990s, this paper address a series of questions related to these changes:Why is cross-shareholding, which has been in place for almost three decades, now show that profitable firms with easy access to capital markets and high foreign ownership prior to the banking crisis have tended to unwind cross-shareholdings, while low-profit firms with difficulty accessing capital markets and low foreign ownership in the early 1990s have tended to keep their cross-shareholding relationships with banks. We also show that high intuitional shareholding and, somewhat surprisingly, block shareholding by corporations have positive effects on firm performance, while bank ownership has had a consistently negative effect on firm performance since the mid-1980s. We use these findings to address some policy implications and to provide some perspectives on the future of the ownership structure of Japanese firms. JEL classification; G21; G32; K22; L25
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.