Hitoshi Takehara

Expected return, liquidity risk, and contrarian strategy: evidence from the Tokyo Stock Exchange

Purpose - The purpose of this paper is to determine the best conditional asset pricing model for the Tokyo Stock Exchange sample by utilizing long-run daily data. It aims to investigate whether there are any other firm-specific variables that can explain abnormal returns of the estimated asset pricing model. Design/methodology/approach - The individual firm sample was used to conduct various cross-sectional tests of conditional asset pricing models, at the same time as using test portfolios in order to confirm the mean variance efficiency of basic unconditional models. Findings - The papers multifactor models in unconditional forms are rejected, with the exception of the five-factor model. Further, the five-factor model is better overall than the Fama and French model and other alternative models, according to both the Gibbons, Ross, and Shanken test and the Hansen and Jagannathan distance measure test. Next, using the final conditional five-factor model as the Originality/value - In the literature related to Japanese data, there has never been a comprehensive test of conditional asset pricing models using the long-run data of individual firms. The conditional asset pricing model derived for this study has led to new findings about the predictability of past one-year returns and the turnover ratio.

Calendar Cycles, Infrequent Decisions, and the Cross Section of Stock Returns

We show that when investors review their consumption and investment plans infrequently at different points in time with interim information flows, the standard consumption-based capital asset pricing model (CCAPM) will continue to hold only at those points in time when all investors review their plans. Stylized facts suggest that the end of the tax year is a candidate for one such points in time. Therefore, we should expect more support for the CCAPM during the period surrounding the end of the tax year, i.e., the fourth and first quarters in Japan where the tax year ends in December, and the first and second quarters in the United Kingdom where the tax year ends in April. Our empirical findings are consistent with these expectations. This paper was accepted by Wei Xiong, finance.

An interior point algorithm for large scale portfolio optimization

The minimum-norm point problem which arises in portfolio selections is discussed and an interior point algorithm to solve the problem is proposed in this paper. Three kinds of problems, the mean-variance, the index matching and the multiple factor models are viewed as variants of the minimum-norm point problem. Results of the computational experiments are attached to show the proposed algorithm as a very powerful tool for large scale portfolio optimization.

Effects of Tax Rate Changes on the Cost of Capital: The Case of Japanese Firms

The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed for Japanese firms. Special emphasis is given to changes in statutory tax rates and provisions that allow firms to carry their losses forward.

Does the Fama and French Five-Factor Model Work Well in Japan?

In this study, we investigate whether the five†factor model by Fama and French (2015) explains well the pricing structure of stocks with long†run data for Japan. We conduct standard cross†section asset pricing tests and examine the additional explanatory power of the new Fama and French factors; robust†minus†weak profitability factor and conservative†minus†aggressive investment factor. We find that robust†minus†weak and the conservative†minus†aggressive factors are not statistically significant when we conduct generalized method of moments (GMM) tests with the Hansen–Jagannathan distance measure. Thus, we conclude that the original version of the Fama and French five†factor model is not the best benchmark pricing model for Japanese data during our sampling period from the year 1978 to the year 2014.

Estimating the hidden corporate social performance of Japanese firms

Purpose - Managers sometimes hide their level of corporate social performance (CSP) from investors, intentionally or unintentionally. The purpose of this study is to estimate such “hidden CSP” of firms. Design/methodology/approach - We assume that Japanese public firms can be classified into two groups based on the difference in CSR awareness. Thus, the respondents to the CSR questionnaire survey are classified as the CSR-aware group, and the non-respondents are treated as the CSR-unaware group. We further assume that a significant relationship exists between CSP and a firm’s attributes, including financial performance and stock ownership. Under these assumptions, we construct a model to estimate the CSP of non-respondents using the relationship between CSP and a firm’s observable attributes. Findings - There is a significant latent gap between the CSP of respondents and the hidden CSP of non-respondents because of differences in firm size, foreign dependency of business, and reputation and trust in the financial markets, rather than because of differences in financial performance. Insider-oriented ownership structures are negatively associated with CSP. Research limitations/implications - The estimation model we developed in this study depends on a set of assumptions. In particular, we assume a stable relationship between CSP and firm-specific variables, i.e., there is no structural change during the observation period. Despite these limitations, this study extends the CSR research perspective as it makes possible to estimate the hidden CSP of public firms. Practical implications - In practice, the findings of this study surface a part of the missing CSR that investors need and that could alert non-respondent firms to the importance of CSR strategy and related disclosures to adapt to rapidly changing social and environmental business settings. Originality/value - This study is the result of academic interest in examining the missing information related to CSR activities in order to obtain an overall picture of the CSP distribution of Japanese listed firms as a whole.

Family firms, firm characteristics, and corporate social performance

Purpose – The purpose of this paper is to explore corporate social performance attained by listed family and non-family firms in Japan. They are measured by the composite CSP index and five attributes composed of employ relations, social contributions (SCs), firm security and product safety, internal governance and risk control, and environment concern. Design/methodology/approach – The authors employ univariate and regression analyses on the quantitatively aggregated CSP score data of Japanese firms from 2007 to 2009. Findings – Japan non-family firms tend to perform better than family firms in terms of attaining corporate social performance overall. Family CEOs positively affect CSP in the foods, textiles and apparels, and pharmaceutical industries as well as in retail trade, wholesale, and services industries, but negatively affect CSP in the heavy manufacturing industry. In these industries the joint effect of the percentage of family shareholdings and the fraction of family members on the board also ...

CSR and cost of capital: evidence from Japan

Purpose This study aims to examine the link between corporate social performance (CSP) and the cost of capital of Japanese firms in 2008-2013, considering the influences of banking relationships and ownership structure. Design/methodology/approach It examines the relation between CSP and the cost of capital in terms of the cost of debt, cost of equity and weighted average cost of capital, using a composite CSP measure based on stakeholder relationships. A regression model is adopted, controlling for bank dependency, ownership structure and firm-specific attributes. Findings Institutional ownership influences the CSP–cost of equity relation and reduces the cost of equity, while CSP is perceived by debtors as not information-mitigating for the observed period. For 2008-2010, the relation between CSP and bank dependency increases the cost of debt; however, the positive influence of bank dependency on the cost of debt dilutes during 2010-2013 as the shift to a more market-oriented financial market in Japan occurs. Practical implications Although bank borrowing is important, especially for small firms, non-financial disclosure makes external financing more flexible. Institutional investors concerned about the non-financial aspects of business, therefore, play an important role in mitigating the information asymmetry that exists in the capital market. Originality/value This study extends research on the CSP–cost of capital link by considering structural changes in financial systems (e.g. capital market perception of CSP and banks as delegated monitors).

Information Asymmetry and Quarterly Disclosure Decisions by Firms: Evidence From the Tokyo Stock Exchange*

This study investigates whether the new quarterly disclosure reporting requirement issued by the Tokyo Stock Exchange was related to the reduction of the degree of private information‐based trade and the liquidity of listed stocks in Japan, or as a reverse causality, helped dichotomize good firms and bad firms as a separating signaling equilibrium. We use the probability of asymmetric information‐based trade (Adjusted PIN) as a measure of information asymmetry and the probability of symmetric order‐flow shock (PSOS) as a measure of market illiquidity. We use a sample of public firms from 2002 to 2007 that chose to either disclose or not disclose quarterly financial reports. We find that the disclosing firms had lower information asymmetry (Adjusted PIN), lower symmetric order‐flow shocks (PSOS), and lower private information‐based trade (PIN). When we conduct further difference‐in‐differences tests, we find that the firms with lower information asymmetry and higher liquidity had a higher tendency to disclose their financial statements and vice versa. Thus, the new disclosure requirement did not necessarily improve the information asymmetry and liquidity of firms, but instead helped good and bad firms form a case for a separating signaling equilibrium.

Changes in the Factor Loadings across Sectors and Economic Dynamics: Evidence for the Japanese Firms

We estimate the equity premium for Japanese firms using the conditional version of Fama and French three-factor model where only the factor loadings are allowed to change unlike Liew and Vassalou (2000) wherein the factor premiums are allowed to change. Then, with considerations to the cyclical components of outputs with the RBC model we investigate the lead and lag relationships between the equity premium of the industry/sector and the measure of business cycles. We try to find the business-cycles related relationship between the cyclical components of the production index and/or GDP and the expected equity premiums for each industry among different sectors of the economy, notably the consumption goods sector and investment goods sector. The RBC model proposed by Boldrin, Christiano, and Fisher (1995, 2000) suggests that these differences exist. We also add a financial sector into this two sector model and then close the model with suitable equilibrium conditions. Within this model it is inferred that the financial sector will have also different business cycles implications. Furthermore, borrowing from the model proposed by Dias-Gomez et al. (1992), we will also be able to incorporate a banking sector, which would also possess different business cycle implications. The empirical relationship we find between the output fluctuations using a simple H-P filter at this first version of the paper and the equity premium changes for the various sectors of the economy shed a new light into the analysis of the business cycles and the equity premium changes, and hence the evolvement of the economy aggregate risk across different sectors of the economy.