W. Carl Kester

Real interest rates and the cost of capital : A comparison of the United States and Japan

Abstract Previous studies have reported a lower cost of capital in Japan than in the United States and attributed the difference to lower real interest rates in Japan. This paper argues that the approach employed in previous studies is biased in favor of the hypothesis that Japanese capital costs are lower. The paper employs an alternative approach. It presents rational expectations tests of the hypothesis that real riskless interest rates are equal across the two countries. The hypothesis that real riskless rates are equal is rejected by data from the period 1976–1985. Although real riskless rates are not equal, the difference favored the U.S. as often as Japan, and by equal orders of magnitude during the decade 1976–1985. The results therefore do not support the nation that Japan has consistently benefitted from lower costs of capital over the decade. Forward parity and ex ante purchasing power parity are also rejected by the data, though these rejections need not imply unexploited financial market opportunities and therefore cannot be said to have caused the differences in real interest rates.

Banks in the board room: The American versus Japanese and German experiences

As the United States debates the scope and direction of banking reform, it should also reconsider current restrictive policies on the involvement of financial institutions in the corporate governance system. Japanese and German bankers maintain close and active relationships with their industrial clients, and their involvement in matters of corporate and contractual governance is substantial. Evidence indicates that this involvement has had a positive effect on corporate performance in those countries. This experience suggests that it is time to restore a role for financial institutions in American corporate governance. When freed from artificial prohibitions against equity ownership and constraints that inhibit their full shareholder rights, financial institutions will be able to play a broadly constructive role in the American system of corporate governance and economic progress.

The price of risk in the United States and Japan

Abstract This study compares the price of risk in the United States and Japan to determine whether differences, if they exist, provide formal support for the widespread perception that capital costs are lower in Japan. The paper compares realized monthly excess returns on value-weighted market portfolios in each country to various measures of risk for each during the period 1982–1986. The data fail to reject the hypothesis that the price of risk is the same in both countries. For most model specifications, the estimated price of risk is (insignificantly) higher for the Japanese market. These and other recent results suggest that realized returns from capital markets cannot document a difference in capital costs during the mid-1980s. Noise and heteroskedasticity in equity returns data for both countries prevent the detection of a significant difference in the price of risk, if one existed.

Global Players, Western Tactics, Japanese Outcomes: The New Japanese Market For Corporate Control

This article, drawn from the recently published book Japanese Takeovers: The Global Contest for Corporate Control, examines the future development of a market for corporate control in Japan. The challenge for the Japanese system of corporate governance is to find a substitute for the lessening of capital market discipline caused by the decline in the dependence of firms on bank lending. A market for corporate control will emerge in Japan: managers will be replaced and capital will be reallocated. But this market will assume a distinctively Japanese character, one that reenforces rather than undermines the firms long-term trading relationships.

Medical Students Who Pursue a Joint MD/MBA Degree: Who Are They and Where Are They Heading?:

Increasingly, health care is being delivered in large, complex organizations, and physicians must learn to function effectively in them. As a result, several medical and business schools have developed joint programs to train physician leaders who receive both medical degree (MD) and master of business administration (MBA) degrees. We examined several themes in relation to these programs, revolving around concerns about who is attracted to them and whether exposure to the differing cultures of medicine and business have an impact on the professional identities of their graduates as manifested in their motivations, aspirations, and careers. We addressed these issues by studying students in the joint MD/MBA program at Harvard Medical School (HMS) and Harvard Business School (HBS). Our data came from several internal sources and a survey of all students enrolled in the joint program in spring 2013. We found relatively few differences between joint program students and equivalent cohorts of HMS students in terms of personal characteristics, preadmission performance, and performance at HMS and HBS. Contrary to the concerns that such programs may draw students away from medicine, the vast majority embraced careers involving extensive postgraduate medical training, with long-term plans that leveraged their new perspectives and skills to improve health care delivery.