This dissertation investigates why a substantial number of common stocks is held
by companies in many countries, especially in Japan. Chapter 1 gives an overview of
historical and legal issues regarding corporate shareholding in Japan. Chapter 2 reviews
how researchers have, theoretically and empirically, approached corporate shareholding
issues.
Chapter 3 elaborates on a corporate shareholding model which incorporates a
standard principal-agent model with Aoki's managerial risk sharing argument (Aoki, 1988).
The model finds that a risk-averse manager of a firm invests in other firms if managerial
reward is linked with the value of the firm she manages, and if the operating profits of
investing and invested firms are negatively correlated. Corporate stock investment is larger
if the invested (and/or investing) company's operating profit is less volatile and/or if the
covariance in the operating profits of the companies is more strongly negative. Although a
stronger link between corporate performance and managerial reward increases managers'
incentive to exert efforts, it also increases the risk that managers must bear. If the risk is too
high, managers would leave their companies. Corporate stock investment reduces the risk,
and enables shareholders to offer a higher incentive to the managers and to earn a higher
(expected) income.
Chapter 4 examines three major arguments concerning the rationale behind the
practice of corporate shareholding: the competitive-effect, risk-sharing, and control-rights
arguments. Predictions drawn from those arguments are tested using panel data of 186
Japanese corporate group firms from 1980 to 1988. The main findings of this study are as
follows. (1) The competitive-effect argument is clearly supported by the data. Firms in the
same industry do tend to invest more in one another. (2) The evidence in favor of the risksharing
argument is weaker — although firms with less risky operating profits tend to
attract more investment, the relationship between investment and the covariance in the
firms' operating profits is ambiguous. (3) The strongest empirical support is given to the
control-rights argument. Indeed, the evidence confirms that a firm is more likely to invest in
other firms that hold more of its own shares.
Chapter 5 concludes this dissertation.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:BVAU.2429/10061 |
| Date | 11 1900 |
| Creators | Nakano, Katsura |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Relation | UBC Retrospective Theses Digitization Project [http://www.library.ubc.ca/archives/retro_theses/] |
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