Yoshikatsu Shinozawa

The ‘Company with Committees’: Change or Continuity in Japanese Corporate Governance?

Corporate governance practices are arguably diffusing across the world. This paper examines the adoption of the committee‐based governance system (i.e. audit, nomination, and remuneration) in Japanese firms, a practice common in Anglo‐American capitalism but potentially contestable in Japan. The study finds that firms that are internationally exposed through cross listing are more likely to adopt the committee system. Moreover, more experienced and highly cross‐held firms, with larger proportions of foreign ownership, are more likely to adopt the committee system. On the other hand our study finds partial support for the hypothesis that larger proportions of bank ownership are negatively associated with the adoption of the committee system, suggesting a gradual withdrawal by banks from the traditional monitoring of firms. This paper adds to the longstanding debate on the convergence on or persistent divergence from the Anglo‐American corporate governance system. The study thus provides insights into corporate governance changes in non‐Anglo/American countries that face a struggle between global capital market forces for change and deep‐seated institutional practices of continuity.

The Effect of Organisational Form on Investment Products: An Empirical Analysis of the UK Unit Trust Industry

The mutual versus plc debate has now branched out to include discussion of the potential benefits to consumers from alternative organisational forms. This paper investigates whether performance, risk and fee levels differ across mutual and plc ownership groups in the UK unit trust industry. To this end, this paper uses monthly time-series data for UK unit trusts industry for the years 2000 to 2005 and compares recorded performance from a consumer perspective by organisational form. The paper finds some difference between the two organisational groups with respect to the annual management fee charged and risk-exposures, which seem to affect returns of their unit trusts. Consistent with recent studies, such results suggest that diversity of organisational form fosters product variations across UK investment products. Copyright (c) 2007 The Author; Journal compilation (c) 2007 Blackwell Publishing Ltd.

MUTUAL VERSUS PROPRIETARY OWNERSHIP: AN EMPIRICAL STUDY FROM THE UK UNIT TRUST INDUSTRY WITH A COMPANY-PRODUCT MEASURE

In the debate of the relative merits of differing ownership forms, most empirical studies examine either corporate performance or the product characteristics of the financial products that are available in the financial services industry. Based on the UK unit trust industry, this paper assesses which ownership form, mutual or proprietary is more efficient in managing unit trust operations and providing high return generating unit trusts. Using a combined corporate performance and product range performance metric, this study reveals no significant differences between the two ownership forms in terms of the corporate-product performance score. The results indicate that the owner-customer fused role in the mutual organization must be considered in the mutual versus proprietary ownership debate. Copyright

Capital Project Analysis When Cash Flows Evolve as a Continuous Time Branching Process

Optimal capital budgeting criteria now exist for a variety of applications when project cash flows (or present values) evolve in terms of the well-known geometric Brownian motion. However, relatively little is known about the capital budgeting procedures that ought to be implemented when cash flows are generated by stochastic processes other than the geometric Brownian motion. Given this, our purpose here is to develop optimal investment criteria for capital projects with cash flows that evolve in terms of a continuous time branching process. Branching processes are compatible with an empirical phenomenon known as ‘volatility smile’. This occurs when there are systematic fluctuations in the implied volatility of a capital projects cash flows as the cash flow grows in magnitude. A number of studies have shown that this phenomenon characterizes the cash flow streams of the capital projects in which firms typically invest. We implement optimal capital budgeting procedures for both the continuous time branching process and the geometric Brownian motion using cost and revenue data for the Stuart oil shale project in central Queensland, Australia. This example shows that significant differences can arise between the optimal investment criteria for cash flows based on a branching process and those based on the geometric Brownian motion. This underscores the need for the geometric Brownian motion broadly to reflect the way a given capital projects cash flows actually evolve if serious errors in valuation and/or capital budgeting decisions are to be avoided.

IAS 29 and the cost of holding money under hyperinflationary conditions

Abstract Empirical evidence is presented on the efficacy of procedures summarised in IAS 29: Financial Reporting in Hyperinflationary Economies for estimating the loss in purchasing power from holding monetary items during hyperinflationary periods. Our empirical analysis encompasses 32 hyperinflationary economies covering a wide variety of hyperinflationary conditions and spanning a period of more than 80 years. While the estimation procedures summarised in IAS 29 perform poorly under all the hyperinflationary conditions encompassed by our sample, they are especially poor when the rate of inflation accelerates towards the end of a relatively short hyperinflationary period. For these latter economies, our best estimate of the actual purchasing power loss is typically only a small fraction of the figure obtained under the IAS 29 procedures. For hyperinflations of longer duration, the IAS 29 procedures return estimated purchasing power losses that are typically around 10% larger than our best estimate of the actual losses. We also derive and empirically test a general class of ‘two point’ estimation formulae that make more efficient use of the sparse information set on which the IAS 29 estimation procedures are based. The results obtained from this procedure are encouraging and suggest it is possible to obtain reliable estimates of purchasing power losses using only sparse information sets provided realistic assumptions are made about the way monetary holdings respond to variations in the purchasing power of the currency.