Corporate Governance and Corporate Behavior in Japan : The Consequences of Stock Options and Corporate Diversification

94 Pages·2016·1.571 MB·English

by  Masaharu Hanazaki (auth.)

SPRINGER BRIEFS IN ECONOMICS
DEVELOPMENT BANK OF JAPAN RESEARCH SERIES
Masaharu Hanazaki
Corporate Governance
and Corporate Behavior
in Japan
The Consequences of
Stock Options and
Corporate Diversification
SpringerBriefs in Economics
Development Bank of Japan Research Series
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Keimei Kaizuka
Editorial Board Members
Akiyoshi Horiuchi
Toshihiro Ihori
Eiji Ogawa
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Masaharu Hanazaki
Masaaki Komiya
Jun-ichi Nakamura
Akihiko Mori
Thisseriesischaracterizedbythecloseacademiccohesionoffinancialeconomics,
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Reporting to predict their effects on Japanese corporate governance. Although the
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Masaharu Hanazaki
Corporate Governance
and Corporate Behavior
in Japan
The Consequences of Stock Options
fi
and Corporate Diversi cation
123
MasaharuHanazaki
Graduate Schoolof Commerce
andManagement
Hitotsubashi University
Tokyo
Japan
and
Research Institute of Capital Formation
Development Bankof Japan
Tokyo
Japan
ISSN 2191-5504 ISSN 2191-5512 (electronic)
SpringerBriefs inEconomics
ISSN 2367-0967 ISSN 2367-0975 (electronic)
Development Bankof JapanResearch Series
ISBN978-4-431-56004-3 ISBN978-4-431-56006-7 (eBook)
DOI 10.1007/978-4-431-56006-7
LibraryofCongressControlNumber:2016943876
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Preface
Japan’s corporate governance structure has changed greatly since the second half
ofthe1990s.Institutionalreforminvolvingenterpriselaw,suchastheintroduction
of a stock option and removal of the ban on holding companies, served as back-
ground.Inthisbrief,theauthorusesmicrodataonlistedcompaniesinanempirical
study of how the new trends in corporate management in Japan, such as the
introduction of a stock option and the evolution of corporate diversification and
divisionofcorporations,influencecorporatebehaviorsandperformance.Themain
findingsofastockoptionanalysisshowthattheintroductionofastockoptionhad
neither a positive impact upon profitability nor a negative side effect of promoting
risk-taking behaviors. The results of an empirical analysis of corporate diversifi-
cation and division of corporations show their negative impacts upon profitability.
However, their negative magnitude is not dependent upon the degree of corporate
diversification or division of corporations. This finding suggests that weak corpo-
rategovernanceisnotthekeyproblembutthatJapanesefirms’managerialstrategy
may be unsophisticated or Japanese corporate diversification and division of cor-
porations might aim at attaining goals such as future firm development, ensuring
market share, welfare improvement for firm employees, and job preservation.
Kunitachi, Japan Masaharu Hanazaki
v
Acknowledgments
This brief is an output of the Development Bank of Japan Research Series. Many
people have helped me in this project in various ways. I would like to thank
AkiyoshiHoriuchi,ToshihiroIhori,andotherparticipantsoftheDBJseminarheld
on September 25, 2015 for the fruitful discussions. I also thank the editorial
committee for their constructive comments and suggestions. Kanako Matsushita
providedmewith valuablestatistical assistancefor an earlier version.Iwouldalso
like to acknowledge with gratitude the editorial assistance from Yuko Hosoda,
AyakoOzawa,andothermembersoftheResearchInstituteofCapitalFormationof
Development Bank of Japan Inc. I am especially grateful to editorial staff at
Springer Japan KK, who gave me useful suggestions and contributed to the com-
pletion of this brief. I gratefully acknowledge the following financial support:
JSPS KAKENHI Grant Number 26380389.
vii
Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 Institutional Characteristics and Effects of a Stock Option. . . . . . . . 5
2.1 What Is a Stock Option? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 The Development of the Stock Option System in Japan. . . . . . . . 6
2.3 Stock Option Studies on Japanese Firms. . . . . . . . . . . . . . . . . . . 11
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 Empirical Analysis of a Stock Option. . . . . . . . . . . . . . . . . . . . . . . 15
3.1 Estimation of Stock Option Value. . . . . . . . . . . . . . . . . . . . . . . 16
3.1.1 Basic Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1.2 Estimation Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.1.3 Estimation Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Has the Profitability of Companies Improved
by the Introduction of a Stock Option?. . . . . . . . . . . . . . . . . . . . 21
3.3 Did the Introduction of a Stock Option Induce Risk-Taking
Firm Behaviors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4 Related Studies of Corporate Diversification. . . . . . . . . . . . . . . . . . 31
4.1 Theories of Corporate Diversification. . . . . . . . . . . . . . . . . . . . . 32
4.2 Negative Effects of Corporate Diversification . . . . . . . . . . . . . . . 32
4.3 Reexamination of the Diversification Discount . . . . . . . . . . . . . . 33
4.4 Corporate Governance and Corporate Diversification . . . . . . . . . . 34
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5 Corporate Diversification of Japanese Firms. . . . . . . . . . . . . . . . . . 37
5.1 How Can I Determine the Actual Conditions
of Corporate Diversification?. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.2 Corporate Diversification and Division of Corporations
in Japanese Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Reference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ix
x Contents
6 Empirical Analyses of Corporate Diversification and Division
of Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1 Hypotheses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.2 The Empirical Analysis: A Comparison Between
Consolidated Financial Statements and Non-consolidated
Financial Statements for Corporations Which Have
Conducted Corporate Diversification and Division
of Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.3 The Empirical Analysis: A Comparison Between
Firms with Consolidated Subsidiaries and Those Without. . . . . . . 55
6.4 The Empirical Analysis: Analysis Based on Segmental
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.5 The Empirical Analysis: Analysis of Pure Holding
Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
7 Main Results and Their Interpretation. . . . . . . . . . . . . . . . . . . . . . 77
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Appendix Tables: Basic Statistics for Major Parameters
of the Black-Scholes Model . . . . . . . . . . . . . . . . . . . 81
About the Author
Masaharu Hanazaki is Professor at the Graduate School of Commerce and
Management, Hitotsubashi University. He graduated from Waseda University in
1979 and joined the Japan Development Bank. He was Director General and the
Executive Director of the Research Institute of Capital Formation of the
Development Bank of Japan (DBJ) from October 2003 to March 2012. After
retiringfromtheDBJinMarch2012,heimmediatelyassumedhiscurrentposition
at Hitotsubashi University. His main fields of research are corporate finance, cor-
porategovernance,financialsystems,andtheJapaneseeconomy.HismajorEnglish
articles include:
“Corporate Governance and Investment in East Asian Firms—Empirical
AnalysisofFamily-ControlledFirms”(withQunLiu),JournalofAsianEconomics,
18, 76–97, 2007.
“A Review of Japan’s Bank Crisis from the Governance Perspective” (with
Akiyoshi Horiuchi), Pacific-Basin Finance Journal, 11, 305–325, 2003.
“Is Japan’s Financial System Efficient?” (with Akiyoshi Horiuchi) Oxford
Review of Economic Policy, Vol. 16, No. 2, 61–73, 2000.
His English book publications include:
Designing Financial Systems in East Asia and Japan, (Joseph P. H. Fan,
Masaharu Hanazaki, and Juro Teranishi, eds.) Routledge Curzon, 2004.
“A Vacuum of Governance in Japanese Bank Management,” (with Akiyoshi
Horiuchi)inBanking,CapitalMarketsandCorporateGovernance(HiroshiOsano
and Toshiaki Tachibanaki, eds.), Palgrave, pp. 133–180, 2001.
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