Performance Impact at the Board Level: Corporate Governance in Japan


Economic literature provides mixed results about what really matters at corporate governance and the board room. Some research covering different countries suggests that size and ratio of board room matters. The purpose of this paper is to investigate the performance impact at the board level in the corporate governance of Japanese companies. We investigate the size as well as the ratio of outside directors and outside auditors and apply them to all Japanese manufacturing companies listing on the First Stock Exchange in Tokyo, a set of 821 companies. To do this, we put Japanese companies into three groups: 1st traditional companies (without outside directors), 2nd new Japanese companies (which appointed outside directors) and 3rd companies who decided to apply to the US-Style system. In our sample we found evidence that board size did not matter but we found correlation between the ratio of outside directors / outside auditors and the performance of the companies. Furthermore, traditional Japanese companies showed the weakest performance, US-style Japanese companies the strongest. This result is highly important as it says that Japanese companies are better off having a high ratio of outside directors and outside auditors. In addition to this, Japanese companies might think about the advantages of introducing a US-style-system. At least in our research with only a few numbers of US-style companies, they outperformed the others.

Keywords: Corporate Governance; board room, US-style corporate governance, JUS-style corporate governance, outside ratio, board size;

Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059

Donghao LI
Graduate School of Business Administration
Kobe University