Satomi Kimino

Macro Determinants of FDI Inflows to Japan: An Analysis of Source Country Characteristics

This paper examines the source country determinants of FDI into Japan. The paper highlights certain methodological and theoretical weaknesses in the previous literature and offers some explanations for hitherto ambiguous results. Specifically, the paper highlights the importance of panel data analysis, and the identification of fixed effects in the analysis rather than simply pooling the data. Indeed, we argue that many of the results reported elsewhere are a feature of this mis-specification. To this end, pooled, fixed effects and random effects estimates are compared. The results suggest that FDI into Japan is inversely related to trade flows, such that trade and FDI are substitutes. Moreover, the results also suggest that FDI increases with home country political and economic stability. The paper also shows that previously reported results, regarding the importance of exchange rates, relative borrowing costs and labour costs in explaining FDI flows, are sensitive to the econometric specification and estimation approach. The paper also discusses the importance of these results within a policy context. In recent years Japan has sought to attract FDI, though many firms still complain of barriers to inward investment penetration in Japan. The results show that cultural and geographic distance are only of marginal importance in explaining FDI, and that the results are consistent with the market-seeking explanation of FDI. As such, the attitude to risk in the source country is strongly related to the size of FDI flows to Japan.

Board Task‐Related Faultlines and Firm Performance: A Decade of Evidence

Manuscript Type: Empirical Research Question/Issue: To what extent can group faultlines and their potential value-destroying effects be detected on corporate boards? Task-related attributes of the type of directorship, education, board tenure, and financial background of board members are considered as directors’ characteristics that give rise to the faultline phenomenon. The impact of task-related faultlines on firm performance as well as the moderating effects of busy boards, Chief Executive Officer (CEO)tenure, executive directors’ (EDs) compensation structure, and the average non-executive directors’ (NEDs) involvement in board committees are examined. Research Findings/Insights: Using a panel of FTSE 350 companies from 1999 to 2008, we find a strong negative effect of task-related faultlines on firm performance. Further exploration of the moderating effects demonstrates that the condition of a busy board and CEO tenure exacerbate the negative effects of faultlines. At the same time, the executive pay contingency is found to have a remedying effect on boardroom cohesiveness, whereas the involvement of NEDs in board committee work is not likely to make the adverse effects of board faultlines less pronounced. Theoretical/Academic Implications: Based on the arguments of social identity theory, this study shows that task-related faultlines on corporate boards have strong negative value-creating implications. The positive moderating impact of the executive compensation structure renders support to agency theory predictions about executive incentive alignment. This work also underlines the usefulness of the concept of faultlines in the corporate governance literature, because unitary boards, where NEDs and EDs share board responsibility, exhibit pre-existing factions, similar to top management teams of family-controlled firms and teams managing international joint-ventures. Practitioner/Policy Implications: This research points to the importance of a careful selection process of directors by nomination committees. It also underlines the role for active leadership on boards, who should be aware of available strategies to ameliorate the negative consequences of board schisms, such as accentuating superordinate board identity and/or informal meetings

Antecedents of Board Composition: The Role of Nomination Committees

Manuscript Type: Empirical Research Question/Issue: The global financial crisis in 2008 has generated increasing recognition of the importance of board diversity reflected amidst the capabilities and skills of directors on a board. As the primary institutional mechanism designed to strengthen the director selection process, nomination committees (NCs) occupy centre stage of this discussion. However, there is a dearth of studies which focus either specifically on NCs or on diversity as a board composition outcome. In this study, we examine the research question of the likely antecedents in terms of NC characteristics of two board composition outcomes, i.e., diversity as variety in terms of gender and nationality, and diversity as separation in terms of a board demographic faultline. Research Findings/Insights: For a panel of FTSE350 companies from 1999 to 2008, we find that the increasing presence on the NC of females or non-British nationals is likely to have a positive impact on the level of board gender and nationality diversity, respectively. In addition, we report that the presence of the chief executive officer (CEO) on the NC is found to interact with the NC independence, as a result of which a board demographic faultline is likely to emerge. Theoretical/Academic Implications: We bring together three concepts from social psychology research to create the theoretical basis for our study of the influence of NCs on board diversity: these are similarity-attraction, homosocial reproduction, and social identity. The strong empirical findings suggest that these socio-psychological dimensions are applicable to the operations of NCs, which has implications for the outcomes of the director nomination and selection process, and consequently also for board composition. Practitioner/Policy Implications: Our research indicates that NC characteristics are significant antecedents of board diversity, hence composition of the NC is an important step and pre-requisite for assembling a diverse board. For example, appointing females and/or non-nationals to the NC increases the likelihood of greater representation of females and/or non-nationals on the entire board. At the same time, our evidence suggests that the presence of the CEO amidst the majority of non-executive directors (NEDs) on the NC is detrimental for board cohesiveness.

Do keiretsu really hinder FDI into Japanese manufacturing

Abstract This paper examines an issue that has received considerable comment but little analysis. It has often been argued that the presence of the keiretsu in Japan has been instrumental in deterring multinational firms from entering Japan, though evidence for this is patchy. We present some new analysis of this issue, thereby evaluating the effects of keiretsu on inward investment penetration in Japan. In contrast to previous work in this area, our results suggest that there is little relationship between inward FDI and keiretsu networks, once one controls for endogeneity and unobservable heterogeneity. The results illustrate some important interaction effects between keiretsu and other explanatory variables that explain differences in inward investment penetration.

Spillovers from FDI and local networks : the importance of transactional linkages and vertical keiretsu in Japan

Purpose – The purpose of this paper is to explore the importance of host country networks and organisation of production in the context of international technology transfer that accompanies foreign direct investment (FDI). Design/methodology/approach – The empirical analysis is based on unbalanced panel data covering Japanese firms active in two-digit manufacturing sectors over a seven-year period. Given the self-selection problem affecting past sectoral-level studies, using firm-level panel data is a prerequisite to provide robust empirical evidence. Findings – While Japan is thought of as being a technologically advanced country, the results show that vertical productivity spillovers from FDI occur in Japan, but they are sensitive to technological differences between domestic firms and the idiosyncratic Japanese institutional network. FDI in vertically organised keiretsu sectors generates inter-industry spillovers through backward and forward linkages, while FDI within sectors linked to vertical keiretsu activities adversely affects domestic productivity. Overall, our results suggest that the role of vertical keiretsu is more prevalent than that of horizontal keiretsu. Originality/value – Japan’s industrial landscape has been dominated by institutional clusters or networks of inter-firm organisations through reciprocated, direct and indirect ties. However, interactions between inward investors and such institutionalised networks in the host economy are seldom explored. The role and characteristics of local business groups, in the form of keiretsu networks, have been investigated to determine the scale and scope of spillovers from inward FDI to Japanese establishments. This conceptualisation depends on the institutional mechanism and the market structure through which host economies absorb and exploit FDI.