Globalizing activities and the rate of survival:: Panel data analysis on Japanese firms

This paper conducts a Cox-type survival analysis of Japanese corporate firms using census-coverage data collected by METI. A study of exiting firms confirmed several characteristics of Japanese firms in the 1990s. First, excessive internalization in the corporate structure and activities is harmful to corporate survival. Having too many establishments and affiliates weakens corporate performance. Efficient concentration on core competences increases the probability of survival. Second, global commitment helps Japanese firms be more competitive and more likely to survive. However, the channels of a firm's global commitment must be carefully selected. Small firms can benefit from exporting activities, though having foreign affiliates or conducting foreign outsourcing might aggravate their performance. Large firms, on the other hand, can conduct foreign direct investment and foreign outsourcing to possibly enhance the probability of their survival. Third, while corporate performance affects the choice of exits for affiliate firms, it does not affect the survival/exit of independent firms; suggesting the possible malfunctioning of the market mechanisms in the exits of independent firms. Fourth, we do not find any statistically significant evidence that firms with foreign shareholders are more likely to exit; there is little evidence of foot-loose behavior among foreign companies. J. Japanese Int. Economies 17 (4) (2003) 538–560.     

Characteristics and performance of institutional and foreign investors in Japanese and Korean stock markets

This study examines the characteristics of the stock ownership by institutional and foreign investors, as well as their effects on stock price performance in Japan and Korea. The main results of this study are summarized as follows. First, foreign investors have a clearer preference for stocks with large capitalization and low book-to-market ratios than do institutional investors in both Japanese and Korean stock markets. Second, foreign investors prefer stocks with a high return on equity, especially in Korea. Third, average returns have more apparent differentiation among institutional (foreign) ownership portfolios than among foreign (institutional) ownership portfolios in Japan (Korea). Fourth, the stocks that are preferred simultaneously by both institutional and foreign investors show statistically significant positive abnormal returns in both Korea and Japan, whereas those preferred by either institutional or foreign investors show statistically significant positive abnormal returns only in Korea. The institutional investors' incentive for stock holding, the extent of stock market efficiency, and stock price polarization could be the possible explanations for the different empirical results observed for Japan and Korea. J. Japanese Int. Economies 21 (2) (2007) 195–213.     

Do all networks facilitate international commerce? US law firms and the international market for corporate control

This paper estimates the effects of several American law firms' international networks of offices on the total value of overseas mergers and acquisitions (M&A) by US corporations. Nowadays many nations can review proposed mergers and US law firms help clients overcome such regulatory hurdles, effectively greasing the market for corporate control. However, they can also oppose transactions that are inimical to their clients' interests. I present evidence that suggests that Baker & McKenzie—the US law firm with the most overseas offices—has facilitated such transactions, whereas the combined effect of the next five largest American law firms has tended to reduce such M&A. J. Japanese Int. Economies 17 (4) (2003) 520–537.     

Fragmentation,welfare, and imperfect competition

In this paper, we explore the effect of fragmentation of production processes on social welfare in the imperfectly competitive market. We consider a situation in which firms located in a country strategically decide whether they produce at home or move their production overseas. We show that, in such a situation, there exists a Nash equilibrium in which all of the firms move production overseas although domestic production is socially desirable. This implies that “reverse imports” do not necessarily benefit the country. We also discuss the effectiveness of a subsidy for domestic production in improving the social welfare of the country. J. Japanese Int. Economies 21 (3) (2007) 365–378.     

The location of American and Japanese multinationals in Europe

This paper examines the determinants of location choice of American and Japanese foreign direct investment in European manufacturing industries in the early 1990s. The new data used in this study covers 340 Japanese-owned affiliates and 2,312 US-owned affiliates distributed across 38 regions and 7 member states in the European Union. The statistical analysis finds, most importantly, that the location decisions of US and Japanese MNEs are not the same. The Japanese results are consistent with the behavior that firms consider production-cost factors more important than demand-side factors, suggesting Japanese firms’ motive to establish local production capacity to export within the EU market. On the contrary, both cost-side and demand-side factors are found important determinants of location choices for US firms. The results also suggest that location decisions are industry-specific.

R&D and patenting activities of foreign firms in China: The case of Japan

This study investigates the research and development (R&D) and patenting activities of foreign firms in China. Utilizing a panel dataset of Japanese affiliates during the period 2001–2007, we first examine the determinants of R&D activity and find that local market-oriented firms place more emphasis on R&D, whereas process export-oriented firms are less likely to conduct R&D. Affiliates within a large business group that has more affiliates have a higher propensity to undertake R&D. Using only firms with positive R&D expenditures, we next estimate the patent production function. Results indicate that the patent elasticity of R&D for Japanese affiliates is high, suggesting that they are more productive on patent production than other firms. Moreover, local market-oriented firms do need more patents to protect their products, whereas scientific firms demonstrate a lower willingness to register patents in China.     

Zombie firms and economic stagnation in Japan

It is often claimed that one contributing factor to Japan's weak economic performance over the past decade is that Japanese banks have continued to provide financial support for highly inefficient, debt-ridden companies, commonly referred to as ‘zombie’ firms. Such poor banking practices in turn prevent more productive companies from gaining market share, strangling a potentially important source of productivity gains for the overall economy. To explore further the zombie-firm hypothesis, we use industry- and firm-level Japanese data and find evidence that productivity growth is low in industries reputed to have heavy concentrations of zombie firms. We also find that the reallocation of market share is going in the wrong direction in these industries, adding to already weak productivity performance. In addition, we find evidence that financial support from Japanese banks may have played a role in sustaining this perverse reallocation of market share.

Competition and productivity in Japanese manufacturing industries

This paper examines the determinants of productivity in Japanese manufacturing industries, looking particularly at the impact of product market competition on productivity. Using a newly available panel data on around ten thousand firms in Japanese manufacturing for the years 1994–2000, I show that competition, as measured by lower level of industrial price–cost margin, enhances productivity growth, controlling for a broad range of industrial and firm-specific characteristics. Moreover, I suggest that market power, as measured by either individual firm's price–cost margin or market share, has negative impact on productivity level of R & D performing firms. J. Japanese Int. Economies 19 (4) (2005) 586–616.     

Heterogeneous multinational firms and productivity gains from falling FDI barriers

This paper quantitatively assesses the impact of falling foreign direct investment (FDI) barriers on individual firms and its implications for intra-industry reallocation and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton et al. (Econometrica 79(5):1453–1498, 2011) to match micro-level data on Japanese multinational firms facing fixed and variable costs of foreign production. We demonstrate that the calibrated model can be used to replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20 % reduction in FDI barriers is found to generate up to a 26.8 % improvement in industry-level productivity through global market-share reallocations within the industry. Compared with fixed entry barriers, reallocation effects and productivity gains are larger for a reduction of variable costs of foreign production.     

Asian foreign exchange risk exposure

We find that about 25 percent of Asian firms experienced economically significant exposure effects to the US dollar and 22.5 percent to the Japanese yen for the period January 1993 to January 2003. The overall extent of exposure is not sample dependent; a depreciating (appreciating) Asian currency against foreign currencies has a net negative (positive) impact on stock returns. The extent to which firms are exposed to exchange rate fluctuations varies with return horizons; short-term exposure seems to be relatively well hedged, where considerable evidence of long-term exposure is found. Firms with weak liquidity positions tend to have smaller exposures. J. Japanese Int. Economies 21 (1) (2007) 16–37.     

Dawn of Industrialisation? The Indonesian Automotive Industry

This article traces the development of industrial policy towards the Indonesian motor industry within the automotive global value chain. Showing the current dominance of Japanese motor assemblers in Indonesia, it notes the rather undeveloped nature of the locally owned supporting industry, particularly compared with that of neighbouring Thailand. Most investment in auto-parts production has been by foreigners. Nevertheless, Indonesia's rapid domestic-market growth has allowed it to attract foreign automotive investment without having to offer excessively generous incentives. While the continued entry of foreign suppliers of auto parts into Indonesia offers opportunities for local suppliers to upgrade their productive capabilities, it also limits their chances of becoming first-tier suppliers themselves. Japanese automotive investors are optimistic about Indonesia's export potential, more so than Malaysia's.     

Determinants of Individual-Firm Markup in Japan: Market Concentration, Market Share, and FTC Regulations

This paper estimates individual firm level markup for more than 400 major manufacturing firms in Japan. Our estimates suggest the presence of significant market power for most of these firms, due not only to market concentration but also to the firms' own market shares, as well as advertizing and sales promotion efforts. The paper then goes on to assess systematically the impact on estimated markups of regulatory measures taken by the Fair Trade Commission (FTC) of the Japanese Government. We find that non-punitive FTC activities are directed toward the right targets and are reasonably effective, whereas injunctions, the strongest measure endowed to the FTC, has essentially no effect on the markups of firms in our sample. J. Japan. Int. Econ., Dec. 1999, 13(4), pp. 424–450. Institute of Economic Research, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan; Institute for Social and Economic Research, Osaka University; and Faculty of Economics, University of Tokyo. Copyright 1999 Academic Press.Journal of Economic Literature Classification Numbers: L13, L41.     

Japanese Banks’ monitoring activities and the performance of borrower firms: 1981–1996

We construct an index measure that quantitatively describes the monitoring activities of Japanese banks. Using micro data on Japanese banks and borrower firms, we examine the effects of bank monitoring on the profitability of borrower firms. We find significant positive effects in the periods 1986–1991 and 1992–1996, although there is no significant effect in the period 1981–1985. We also examine how banks’ monitoring affects borrowers. The results show that the positive effects of banks’ monitoring on borrowers’ profitability are mostly caused by screening effects, not performance-improving effects.

The Price of Being Foreign: Stock Market Penalties Associated with Accounting Irregularities for U.S.-Listed Foreign Firms

We examine the stock market consequences of disclosing accounting irregularities for U.S.-listed foreign firms. After controlling for the severity of the irregularity and other firm characteristics, we find that foreign firms experience significantly more negative short-window stock market reactions following irregularity announcements than do U.S. firms. Moreover, for a subsample of 64 irregularities of foreign firms that are listed on both a U.S. and home country stock exchange, we find evidence that restating firms' U.S. investors react more negatively to the same irregularity than their home country investors. This differential market reaction appears related to firm-specific information risks that are greater for foreign firms than U.S. firms. Collectively, consistent with the reputational bonding hypothesis in prior literature, our results suggest that accounting irregularities cause U.S. investors to reassess the information risk associated with foreign firms.     

Firm Productivity and Foreign Direct Investment into Non‐core Activities*

As foreign direct investment (FDI) often originates from multinational enterprises (MNEs) with non‐core activities and not single‐product firms, as MNE theory typically suggests, we hypothesize that such firms are more productive than MNEs without non‐core activities as well as non‐MNE firms. We test this hypothesis using Kolmogorov–Smirnov stochastic dominance Tests and Japanese firm‐level productivity and FDI data for the period 1985–2001. We find that both manufacturing and service multinational firms with non‐core foreign investments stochastically dominate firms without non‐core activities. We also find cost‐complementarities between certain core and non‐core FDI activities that span both manufacturing and service affiliates.     

OFDI and stock returns: Evidence from manufacturing firms listed on the Chinese A-shares market

Using data for manufacturing firms listed on the Chinese A-shares market over the 2000−16 period, this paper studies the impact of outward foreign direct investment (OFDI) on stock returns using the propensity score matching. It shows that when firms carry out OFDI for the first time, they have to deal with the risks of the overseas market; therefore, the OFDI firms show significantly higher returns. Furthermore, OFDI affects stock returns through the risk channel rather than the diversification channel; the risks OFDI firms are exposed to are mainly demand and political risks. OFDI firms face different risks than non-OFDI firms, thus investors can obtain diversification benefits by purchasing stocks of OFDI firms. In addition, investors can make diversified investments based on the seven dimensions of the nature of firms and OFDI to increase the opportunity to obtain stock returns. For firms, they can conduct on-site inspections before conducting OFDI, becoming familiar with the host country market, laws and regulations. Firms should try to choose politically and economically stable countries to invest in.     

A structural break in the effects of Japanese foreign exchange intervention on yen/dollar exchange rate volatility

We study the impact of Japanese foreign exchange intervention on the volatility of the yen/dollar exchange rate since the early 1990’s in a GARCH framework with interventions as exogenous variables. Using daily intervention data provided by the Japanese Ministry of Finance, we show that the effect of interventions varies over time. From 1991 up to the late 1990’s, Japanese foreign exchange intervention is associated with an increase in volatility of the yen/dollar exchange rate. After the year 1997, Japanese foreign exchange intervention correlates with reductions in exchange rate volatility. This can be explained by the fact that Japanese foreign exchange intervention remained quasi unsterilized in the liquidity trap.

Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization

This study examines the impact of outward foreign direct investment (OFDI) on Chinese manufacturing firms' financialization and servitization. Using a difference-in-differences approach with propensity score matching, we found that OFDI encouraged firms' financial and service activities. The effects of OFDI on financialization were stronger for firms specializing in short-term financial assets, operating in labor and technology-intensive sectors, investing overseas to pursue production, resources and markets there, and investing in non-OECD and Belt and Road Initiative (BRI) countries. Meanwhile, firms investing overseas were more likely to provide services at the sale or postsale stages. Outward foreign direct investment has also boosted the service activities of firms operating in the technology-intensive sector by investing overseas to seek resources and markets, as well as investing in non-OECD and BRI countries. Finally, OFDI partially influenced the extent of financialization and servitization of firms by affecting their profit-making ability.     

Heterogeneous impacts of Abenomics on the stock market: A Fund flow analysis

This study examines the heterogeneous impacts of Abenomics on the Japanese stock market using fund flow data. While Fukuda (2015) identifies changes in foreign investors’ expectations from price changes in financial markets, we focus on changes in the quantity demanded of Japanese stocks. We obtain three findings. First, only foreign investors aggressively and immediately purchased Japanese stocks at the onset of Abenomics. Second, since the two years following the launch of Abenomics, foreign investment inflows into Japanese stocks have changed due to external factors originating in the United States. Third, a VAR analysis shows the heterogeneous impacts of Abenomics among investors inside and outside Japan. However, the changes in foreign investors’ expectations are short-lived in the sense that signs of permanent shifts as a result of Abenomics cannot be identified after 2014.     

Exports, FDI, and Productivity: Dynamic Evidence from Japanese Firms

This paper examines the relationship between exports, foreign direct investment, and firm productivity. Using longitudinal panel data on Japanese firms, it is found that the most productive firms engage in exports and foreign direct investment, medium productive firms engage in either exports or foreign direct investment, and the least productive firms focus only on the domestic market. Moreover, exports and foreign direct investment appear to improve firm productivity once the productivity convergence effect is controlled for. Firms that retain a presence in foreign markets, either by exports or foreign direct investment, show the highest productivity growth, which contributes to improvements in national productivity. JEL no. F10, F20, D21