A Note on Synchronization Risk and Delayed Arbitrage

This note reexamines Abreu and Brunnermeier's (2003) analysis of a bubble that persists towards synchronization risk. We find that a certain condition that usually does not hold is required for the existence of synchronization risk.

The Relationship between Managerial Compensation and Business Performance in Japan: New Evidence using Micro Data

This paper examines the relationship between the level of Japanese business managers' compensation and the quality of corporate governance, and whether weaker governance structures lead to poorer future performance. The conclusions of this paper are as follows. First, the level of Japanese business managers' compensation increases as the percentage of 'old', 'bank' and 'gray' outside directors increases. Compensation also increases with board stockholding and block holding. This suggests weak monitoring by old, bank and gray outside directors and block holders. Second, our results show that firms with weaker governance structures have poorer performance. These results suggest the existence of an overcompensation problem with Japanese managers similarly to the US.Board of Directors, Corporate Governance, Managers' Compensation, Ownership Structure.

Does Pre-trade Transparency Affect Market Quality in the Tokyo Stock Exchange?

This paper presents an examination of the relation between pre-trade transparency and market quality in the Tokyo Stock Exchange (TSE). Mixed evidence related to this relation has been reported worldwide. We analyzed this relation using a discrete change of disclosure policy in the 2000s. A positive relation pertains between pre-trade transparency and market quality. This result implies that the change of disclosure policy on the TSE might be effective for market quality improvement to some extent.Pre-trade transparency; Market quality; Quote Disclosure

Managerial Compensation, Corporate Governance, and Business Performance in Japan: Evidence Using New Micro Data

This paper examines the relations between the disciplinary role of Japanese relationship-oriented corporate governance mechanisms, such as keiretsu memberships and bank-appointed directors, and pay-performance sensitivity in Japan. Previous studies show that pay-performance sensitivity is positive and almost the same as in a market-oriented system like that of the USA. However, under the Japanese relationship-oriented system, pay-performance sensitivity may be controlled by financial keiretsu ties and bank-appointed directors. We find that the disciplinary mechanism of keiretsu memberships and bank-appointed monitors did not function well in Japan in the 1990s.Corporate Governance, Firm Performance, Japan, Keiretsu Memberships, Managerial Compensation

Main Bank Relationship and Accounting Conservatism: Evidence from Japan

In a market-oriented economy like the U.S., the process of monitoring through lending mitigates lenders’ demand for accounting conservatism. Japanese corporate governance is characterized as a bank-dominated or relationship-oriented system. Under bank-dominated systems, main banks are expected to be effective monitors. In our model, main banks play the role of reducing the lenders’ demand for accounting conservatism by reducing information asymmetry. We find that main banks can reduce the demand for accounting conservatism. Our findings help understand accounting conservatism vis-à-vis agency problems. We provide empirical evidence to contribute to literature on banking, specifically to fields such as relationship banking

Earnings Management and Internal Control in Bank-dominated Corporate Governance: Evidence from Japan

We examine the relationship between internal governance and earnings management in Japanese listed firms. Post the recent accounting frauds in large companies such as Olympus Corp. and Toshiba Corp., Japanese internal governance systems have also been widely criticized. Different from the US and UK, Japan is known as bank-dominated corporate governance system. We predict that the bank-client relationship is expected to mitigate opportunistic earnings management by mitigating the degree of information asymmetry, which is a main cause of agency problems arising from debt contracts. Our results show that bank-appointed audit board members mitigate managerial earnings management. Furthermore, neither outside directors nor audit committees (ACs) are helpful to decrease opportunistic managerial earnings management. Our findings imply that a lender monitoring system, through audit board members, could contribute by substituting the monitoring role of outside directors and ACs