Shinichi Hirota

Corporate mission, corporate policies and business outcomes: evidence from Japan

Purpose – This study sets out to explore questions such as: “Does mission statement matter? If so, in what ways?” Using data on mission statements of 128 large Japanese firms, the paper aims to show that corporate mission has a significant impact on corporate policies that determine employment, board, and financial structures.Design/methodology/approach – The paper provides evidence that strong‐mission firms are more likely to retain incumbent employees, promote managers from within firms, and have less debt and a higher percentage of interlocking shareholdings than weak‐mission firms.Findings – The evidence supports the view that strong‐mission firms value their organizational capital and thus tend to adopt policies to preserve it. It also confirms that corporate mission and its embedded policies contribute to better corporate performance. The paper suggests that the effect of explicit corporate mission and its implementation has practical impacts in corporate policies and business outcomes.Research limi...

What Makes Autonomous Management Do Well?: Corporate Governance without External Controls

We propose a model of the widely held firm where management may behave on behalf of shareholders even without external controls. The model shows that there exists a corporate governance mechanism inside the firm where workers are employed on a long-term basis. When effort of young workers depends on managerial decision-making, they give implicit pressure on the managers, which may substitute control by shareholders. If this mechanism works fairly well, it is optimal for shareholders to leave the firm autonomous. We also discuss how the firms internal factors (such as retention rate and business information sharing) and external environments (such as product market competition and labor market rigidity) affect the efficacy of this internal governance mechanism.

Do banks diversify portfolio risk? A test of the risk-cost hypothesis

Abstract Baltensperger, 1972a , Baltensperger, 1972b proposes the risk-cost hypothesis that banks decide the number of loans by considering the costs arising from diversifiable portfolio risk. Thus, the banks do not minimize operation costs, but total costs including risk costs. This paper examines empirically whether the risk-cost hypothesis is valid, using financial panel data from Japanese banks from 1981 to 1994. Estimating the first-order condition of total cost minimization together with an operation cost function, we find that the hypothesis is supported. Dividing the sample into different types of banks, it is found that the hypothesis is valid for city and regional banks, but not for second regional banks.

Does Corporate Culture Matter? Evidence from Japan

Corporate culture does matter. Using data on mission statements of large Japanese firms, we show that corporate culture has a significant impact on corporate policies that determine employment, board, and financial structures. We provide evidence that strong-culture firms are more likely to retain incumbent employees, promote managers from within firms, and have less debt and a higher percentage of interlocking shareholdings than weak-culture firms. This evidence suggests that strong-culture firms consider their culture to be organizational capital and adopt policies to preserve it. We also confirm that culture and its embedding contribute to better corporate performance. We find these culture effects to be considerable in magnitude and at least as large as those of other factors, and assert that the role of culture must be taken into account in order to understand corporate policies and performance.

Speculation and Price Indeterminancy in Financial Markets

We explore how speculative trading causes price indeterminacy in financial markets. Contrary to standard finance theory, we argue that speculating investors’ difficulty in forming rational expectations induces security prices to deviate from the fundamental values. We conducted a laboratory asset market experiment with overlapping generations of investors. We find that in markets with speculating investors (i) price deviations are larger; (ii) price deviations increase as the holding period of investors shrinks (and frequency of security transfers increases); (iii) speculative trading creates upward (downward) pressure on prices when liquidity is high (low); and (iv) price expectations are formed through forward induction from recent price changes, instead of backward induction from the fundamentals. The results suggest that speculation causes price indeterminacy when dynamic formation of inter-temporal rational expectations is infeasible.

Investment Horizons and Price Indeterminacy in Financial Markets

We examine how different investment horizons, and consequently the number of hands through which a security passes during its life, affect prices in a laboratory market populated by overlapping generations of investors. We find that (i) price deviations are larger in markets populated only by short-horizon investors compared to markets with long-horizon investors; (ii) for a given maturity of security, price deviations increase as investment horizons shrink (and frequency of transfers increases); and (iii) short investment horizons create upward pressure on prices when liquidity is high and downward pressure when liquidity is low.