Managerial Control inside the Firm

This paper proposes an implicit control mechanism of managers inside the firm. We argue that the need to motivate workers may make it beneficial for a self-interested, short-sighted manager to pursue long-run viability of the firm. When the firm is in a stable environment, this implicit control mechanism may not contradict shareholder value maximization. However, when the firm needs restructuring, this mechanism damages firm value. We discuss when external governance is desirable, and when it is not. Our model also offers economic explanations for some related issues in managerial behavior such as restructuring aversion, survival motive, and excessive risk aversion.

Price Bubbles sans Dividend Anchors: Evidence from Laboratory Stock Markets

We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), prices levels and paths become indeterminate and lose dividend anchors; investors tend to form their expectations of future prices by forward, not backward, induction. These laboratory results suggest that investors' short horizons and the consequent difficulty of backward induction are important contributors to the emergence of price bubbles.

Price bubbles sans dividend anchors: Evidence from laboratory stock markets

We experimentally explore how investor decision horizons influence the formation of stock prices. We find that in long-horizon sessions, where investors collect dividends till maturity, prices converge to the fundamental levels derived from dividends through backward induction. In short-horizon sessions, where investors exit the market by receiving the price (not dividends), prices levels and paths become indeterminate and lose dividend anchors; investors tend to form their expectations of future prices by forward, not backward, induction. These laboratory results suggest that investors' short horizons and the consequent difficulty of backward induction are important contributors to the emergence of price bubbles

Main Bank Relationships in Japan: From monitoring to risk hedging (Japanese)

In this paper, we discuss the current status and function of main bank relationships in Japan, based on the results of a survey conducted on transactions between businesses and their main banks and interviews with companies and banks. First, we surveyed transactions between 500 large Japanese companies and their main banks over a period of 35 years, from 1973 to 2008, and examined recent changes in these relationships. As a result, the following facts were discovered: (1) the relationships between companies and their main banks are static, and most companies have not changed their main banks; (2) during the 1980s and 1990s, the significance of bank borrowings and main bank borrowings declined, reflecting the lower debt ratio of companies; (3) however, after the 1990s, the dependence on main bank borrowings remained almost unchanged; (4) the relationship between companies and their main banks in terms of shareholding and the dispatch of officers weakened in the 2000s; (5) when companies engage in new ways of financing (e.g., commitment lines, syndicated loans, etc.), they often ask their main banks to become the lead manager; and (6) the main banks and their securities subsidiaries have a large share of the issuance business (acting as the financial agent and the lead underwriter, etc.) when companies issue corporate bonds. These survey results show that companies still have a close relationship with their main banks, but a weakening connection in terms of loans, shareholding, and officers. So why do companies still maintain a strong relationship with their main banks? By conducting interviews with both companies and banks, it was revealed that there was still a tacit understanding between the parties that the banks would provide the companies with funds when necessary. The banks would also offer support should the companies face financial trouble, in exchange for the companies' loyalty. This implies that the role of the main banks is to hedge financial risk. Despite the progress today in the formation and globalization of financial markets, there is still considerable risk of companies going bankrupt. It was also discovered that the companies asked their main banks for the provision of information and financial services. Putting these findings together, it is conceivable that the provision of risk-hedging and financial services has become an important function of main banks in Japan, which used to focus on monitoring and governance.

Does Corporate Culture Matter? An Empirical Study on Japanese Firms

Corporate culture does matter. Using Japanese firms' data from 1987-2000, we have shown that the strength of corporate culture significantly affects corporate policies such as employment policy, management structure, and financial structure. We have also confirmed that the culture and its embedding contribute to better corporate performance. These culture effects are found to be considerable in magnitude and at least as large as those of other factors. We suggest that it is important to recognize the existence of the culture for understanding corporate policies and performance.

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

Speculation and Price Indeterminacy in Financial Markets: An Experimental Study

To explore how speculative trading influences prices in financial markets, we conduct a laboratory market experiment with speculating investors (who do not collect dividends and trade only for capital gains) and dividend-collecting investors. Moreover, we operate markets at two different levels of money supply. We find that in phases with only speculating investors present (i) price deviations from fundamentals are larger; (ii) prices are more volatile; (iii) mispricing increases with the number of transfers until maturity; and (iv) speculative trading pushes prices upward (downward) when the supply of money is high (low). These results suggest that controlling the money supply can help to stabilize asset prices

Dexamethasone and Acetate Modulate Cytoplasmic Leptin in Bovine Preadipocytes

Hormonal and nutrient signals regulate leptin synthesis and secretion. In rodents, leptin is stored in cytosolic pools of adipocytes. However, not much information is available regarding the regulation of intracellular leptin in ruminants. Recently, we demonstrated that leptin mRNA was expressed in bovine intramuscular preadipocyte cells (BIP cells) and that a cytoplasmic leptin pool may be present in preadipocytes. In the present study, we investigated the expression of cytoplasmic leptin protein in BIP cells during differentiation as well as the effects of various factors added to the differentiation medium on its expression in BIP cells. Leptin mRNA expression was observed only at 6 and 8 days after adipogenic induction, whereas the cytoplasmic leptin concentration was the highest on day 0 and decreased gradually thereafter. Cytoplasmic leptin was detected at 6 and 8 days after adipogenic induction, but not at 4 days after adipogenic induction. The cytoplasmic leptin concentration was reduced in BIP cells at 4 days after treatment with dexamethasone, whereas cytoplasmic leptin was not observed at 8 days after treatment. In contrast, acetate significantly enhanced the cytoplasmic leptin concentration in BIP cells at 8 days after treatment, although acetate alone did not induce adipocyte differentiation in BIP cells. These results suggest that dexamethasone and acetate modulate the cytoplasmic leptin concentration in bovine preadipocytes