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Corporate Value, Managerial Stockholdings and Investments of Japanese Firms
Author(s) -
Chen Carl R.,
Guo Weiyu,
Mande Vivek
Publication year - 2006
Publication title -
journal of international financial management and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.818
H-Index - 37
eISSN - 1467-646X
pISSN - 0954-1314
DOI - 10.1111/j.1467-646x.2006.00120.x
Subject(s) - keiretsu , enterprise value , business , value (mathematics) , sample (material) , argument (complex analysis) , agency cost , agency (philosophy) , point (geometry) , corporate management , principal–agent problem , panel data , microeconomics , accounting , industrial organization , economics , corporate governance , finance , econometrics , shareholder , biochemistry , chemistry , philosophy , geometry , mathematics , chromatography , epistemology , machine learning , computer science
We use a simultaneous equation model which treats firm value, investments and management ownership as endogenous to the firm. Our results show a feedback relation between corporate value and management ownership, i.e., corporate value is positively impacted by management ownership, which in turn is positively impacted by corporate value. Corporate value also affects investments made by the firm. We also find that the effect of the main bank on corporate value is positive but only up to a certain point; then, it turns negative. Supporting the argument that keiretsu firms have lower agency cost, we find that firms belonging to a keiretsu have higher valuations during the sample period. Finally, we find that management ownership increases as the ownership of the main bank, ownership of institutional holders and cross‐holdings decreases, suggesting a substitution effect among these monitoring forces. Our results indicate that ignoring the web of these relationships leads to incorrect inferences.