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.

Purpose Principal–principal conflicts between family shareholders and other shareholders have been investigated in emerging economies, but fewer studies have examined the effect of concentrated ownership on firm profitability and dividend payout in stakeholder-oriented systems. The purpose of this paper is to examine whether family control leads to principal–principal conflicts resulting in wealth expropriation of minority shareholders by family owners in stakeholder-oriented systems. Design/methodology/approach This study uses large listed firms of the Tokyo Stock Exchange (TSE) in Japan during 2007–2016. Using 14,991 firm year observations, the authors analyze the effect of family control on dividend payout and firm performance to test the possibility of exploitation by family owners. Findings The authors find that family board members do not exploit minority shareholders and rather behave as stewards of the firm. The authors also find that foreign shareholders interact with family control to increase firm profitability, suggesting that foreign shareholders enhance the role of family board members as stewards. Originality/value Existing research on principal–principal conflicts tends to examine expropriation by family board members in emerging markets. This research reveals that family board members behave like stewards in the presence of stakeholder-oriented corporate governance mechanisms. In addition, foreign shareholders strengthen the stewardship role of family controlled firms.

No abstract

Manuscript Type Empirical Research Question/Issue This paper explores the incentive structure of executive compensation in Japan in 2010, when Japanese individual executive compensation data for those receiving more than 100 million Japanese yen were made public for the first time. This public disclosure enables investigation of the relation between cash‐based and stock‐based individual incentive compensation and corporate governance mechanisms in Japan. Research Findings/Insights Results show that 1) the bank ties do not substitute for incentive compensation, unlike in the 1990s in Japan, when they were effective for solving agency conflicts; and 2) the role of incentive compensation is found to be effective for firms with a higher degree of foreign ownership. We also examine the role of the new internal control mechanism of firms with a committee system which includes a compensation committee for facilitating incentive compensation. However results show that internal control systems of firms with committees only facilitate short‐term incentive packages because they fall into short‐termism as a result of their short duration of a single year. Theoretical/Academic Implications Theoretically, bank ties do not contribute as a substitute for incentive compensation to align management and shareholder interests under a Japanese relationship‐oriented system. This implies that Japanese relationship‐oriented systems would have been weakened by solving agency conflicts. Furthermore, firms with committee systems can no longer provide managerial incentives because of the short‐termism of committee members. Practitioner/Policy Implications This study provides insights for practitioners and policymakers interested in executive compensation structures in any country where corporate governance is reformed to introduce Anglo‐American mechanisms.