Konari Uchida

The Characteristics of Online Investors

Using survey data, we explore the characteristics of Japanese online investors. Our main findings are as follows. First, young men are more likely to engage in online trading. Second, employed investors trade online more frequently, implying that proximity to the information network of the workplace affects investor decisions to trade online. Third, we do not find that investors who are more satisfied with their past returns tend to invest online more often. Thus, the self-attribution bias is not supported for Japanese online traders. Finally, Japanese online investors prefer capital gains, do not prefer low-volatility stocks, refer to chart data, make investment decisions more frequently, and tend to choose stocks to buy and sell on their own. These characteristics of Japanese online investors are consistent with those of overconfident investors.

Do independent boards effectively monitor management? Evidence from Japan during the financial crisis

To examine whether outside (or independent) directors monitor management in the shareholder interest, the authors collect Japanese companies that experience 33 per cent or more performance declines during the financial crisis (for the 2008 accounting year) and investigate how board independence affects management turnover and corporate dividend policy. The authors find that the fraction of outside (or independent) directors over total board members is positively related to the frequency of management turnover, whereas managerial and bank ownership are negatively related to the likelihood of turnover. This suggests that independent boards critically monitor management and make turnovers more sensitive to poor firm performance. In addition, the proportion of outside (or independent) directors to total board members is negatively related to the likelihood that a firm will decrease dividend payments. Such results suggest that independent boards discipline management and protect shareholder wealth. From a viewpoint of shareholder wealth maximization, we argue that the recent regulatory movement is in the right direction.

Ownership Structure, Tax Regime, and Dividend Smoothing: International Evidence

We investigate dividend smoothing behaviors of approximately 6,000 firms from 28 countries. The data find a wide variation in the extent of dividend smoothing across countries, while US firms smooth dividends the most. Firms with a concentrated ownership structure adjust their dividends quickly, especially when the target dividend level is lower than dividends of previous years. Companies located in a classical tax system have lower target dividend levels and in turn smooth dividends more than companies in a partial or full imputation system. These results suggest US firms adjust their dividend payments only slowly due to the dispersed ownership structure and tax system.

Shareholder Composition and Managerial Compensation

Stock options are used only sparingly in Japan. Japanese firms are more likely to adopt new stock option plans when they are more (less) owned by arms-length investors (stable and controlling shareholders). Those firms have significantly more independent boards and pay higher dividends surrounding the adoption year than their industry peers. These results suggest that firms adopting stock options endeavor to meet demands for good governance practice from arms-length shareholders and to follow good governance practices in other dimensions. The coexistence of arms-length, stable, and controlling shareholders generates a situation in which stock options are not widely used in Japan.

How Do Corporate Control Rights Transactions Create Shareholder Value? Evidence from China

We investigate the stock price performance of companies that become a block trade target in China where unique institutional characteristics exist. As with US evidence, stock prices of target companies positively react to the announcement of block trades. The positive effect of block trades becomes small as the target firm had high director ownership before the block trade. Publicly tradable share (PTS) transactions experience better stock price performance than non-publicly tradable share (NPTS) transactions do probably because share non-tradability provides NPTS bidders with only weak incentives of value maximization. Meanwhile, the divergence of bidding price from the market price does not impede value creation. We find no evidence that shareholders of SOEs receive gains by transferring the control rights to private parties.

Stock Option Grants and Managerial Risk Taking: Evidence from Japanese Intraday Stock Return Data

This paper investigates whether stock option grants increase managerial risk taking in Japan by using intraday stock return data as well as daily stock return data and yearly financial data. As with previous US studies, we find that firms that announce stock option grants experience significantly higher increase in realized stock volatility than matched peers do during 201 days surrounding the announcement day. We also find a significant increase in their leverage during the three years after the event year. Importantly, those companies experience significantly higher increase in realized volatility during a few days surrounding the announcement day which is computed by the intraday stock return. This result provides evidence that stock options give managers an incentive to take risk in a research environment that suffers less from contamination effects and endogeneity problems. However, there is no evidence that the increased managerial risk-taking creates shareholder wealth.

Ownership Structure, Tax Regime, and Dividend Smoothing

Since the novel study of Lintner (Am Econ Rev 46:97–113, 1956), it has become a widespread idea that US firms only gradually adjust dividend levels toward long-term targets (Fama and Babiak, J Am Stat Assoc 63:1132–1161, 1968; Mueller, Q J Econ 81:58–87, 1967; Brav et al., J Financ Econ 77:483–527, 2005; Leary and Michaely, Rev Financ Stud 24:3198–3249, 2011). Dividend smoothing helps firms mitigate problems that arise from information asymmetry (e.g., signaling and reduction of agency costs). Gugler (J Bank Finance 27:1297–1321, 2003) and Michaely and Roberts (Rev Financ Stud 25:712–746, 2012) show evidence supporting this idea by using data from the UK and Austria, respectively. However, single country analyses do not provide conclusive answers to the question of why firms smooth dividends. There are significant variations in agency relationships across countries which generate substantial differences in dividend smoothing behaviors. Shleifer and Vishny (J Finance 52:737–783, 1997) point out that in continental Europe and East Asian countries, corporate ownership structures are highly concentrated and there are less severe conflicts between controlling shareholders and management. This fact naturally leads to the idea that international data provides us with an appropriate research setting in which to address the question.

Institutional Investors, Corporate Social Responsibility, and Stock Price Performance

In 2006, the United Nations Global Compact launched Principles for Responsible Investment (PRI), and the Japanese Ministry of Environment advocated financial mechanisms for environmental protection. We find that institutional ownership in 2005 is positively related to the probability of subsequent improvements in environment ratings for Japanese firms. The result is especially evident for domestic institutional shareholders who signed up for the PRI. These results suggest that soft law aimed at institutional investors can enhance responsible business practices and that national government initiatives play an effective role. Finally, improved ratings in the environment category do not harm shareholder wealth.

The Impact of Foreign Entry on Chinese Banks

Utilizing hand collected data concerning foreign ownership in the Chinese banking sector, we examine whether foreign ownership improves the efficiency of Chinese banks. Foreign banks tend to provide cooperation in retail banking rather than in corporate or private banking. We find no robust evidence of an improvement in the efficiency of an average bank that receives foreign strategic investments. However, the bank cost and profit efficiency significantly improve when foreign strategic investments provide retail banking and internal control assistance respectively to local banks. These findings suggest that foreign investment improves local bank efficiency when it transfers technologies that are lacking in local banks.

Market Timing in Private Placements of Equity

In Chinese equity issues, long-term interval exists between initial announcement and execution due to regulatory process. Meanwhile, issuance prices of private placements are regulated not to fall below 90% of market prices at the announcement. We argue that Chinese firms conduct private placements to issue overpriced shares. Consistent with the hypothesis, we find that firms conducting private placements are more overvalued at the announcement and execution than non-equity issuers. Those firms experience significant stock price run-ups preceding the announcement and long-term under-performance following the execution. Meanwhile, private placements offer significantly greater discounts than public offerings do. Accordingly, firms with large overvaluation prefer public offerings to private placements. The finding suggests that Chinese firms encounter trade-off between guarantee of issuance price and discount costs in their choice of equity issue mode. Finally, we find that private issuers with large overvaluation can decrease discounts.