Abstract
This study examines the influence of foreign ownership on the corporate social performance (CSP) of Japanese firms in a business environment characterised by globalisation and rapidly changing ownership structures. Using our originally constructed CSP indices related to stakeholder relationships for 2007–2011 when foreign investors became a major player in the Japanese stock market, the results of our analyses show that the relationship between foreign ownership and CSP is positive and more pronounced than the relationship between domestic ownership and CSP. Furthermore, we find the increase in foreign ownership enhances CSP with four sets of 3-year sub-period data. These findings suggest that foreign investors make Japanese firms to improve CSP by motivating firms to reconsider trustworthiness of their business in global society and markets and change their corporate social responsibilities. Our results imply that foreign investors play an important role in shifting Japanese corporate governance from the traditional insider-oriented structure to a structure that is characterized by greater openness and transparency to survive and success in global competition.
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Notes
- 1.
In 2006, the Tokyo Stock Exchange required listed companies to disclose a Corporate Governance Report. In 2008, the Financial Instruments and Exchange Act required corporations to submit Internal Control Reports to the Ministry of Finance.
- 2.
This classification of stakeholders is consistent with the Girerd-Potin et al. (2014) typology: business stakeholders (employee, customers, and suppliers), social stakeholders (the environment and society), and financial stakeholders (stockholders and debt holders) and is also consistent with Clarkson’s (1995) classification of primary stakeholders.
- 3.
Toyo Keizai Incorporated have annually sent the questionnaire to the listed firms in the beginning of July and retrieved responses by the end of September since 2006. However, the form of the questionnaire was significantly revised in 2007. The original database consists of three parts: employee relations (Part I), an overall survey related CSR (Part II), and environmental preservation (Part III). We subdivided Part II into three distinct CSR dimensions, which correspond to the stakeholder relations we chose. First, we selected 17 questions related to employee relations, 21 questions concerning CSR in a general sense, and 18 questions regarding environmental preservation. We first converted quantitative data (e.g. proportion of female employees) to three- or four-level categorical data. Then, we made within-sector adjustments because some questions had different meanings among sectors. For each of the five CSP attributes, we used a principal component analysis to construct CSP dimensional indices. On the basis of responses to the questions, we kept 13 scores regarding employee relations (EMP), five scores regarding social contributions (SC), five scores regarding security of the firm and product safeness (SS), six scores regarding internal governance and risk management (IG), and five scores regarding environmental preservation (ENV). The item scores and their related factor loading are shown in Appendix 1. We then demeaned and scaled each CSP dimensional index by its standard deviation so that it approximately obeyed a standard normal distribution.
- 4.
Japanese corporations are required to disclose a summary of their stock ownership structure in their financial reports. This summary describes the number of shares owned by domestic corporations, foreign corporations, and individual investors. This categorisation scheme is restricted by the amount of information that firms publish, but it is sufficient for analysing foreign ownership preferences for and influences on CSP relative to domestic ownership. Thus, this study represents a viable first step in investigating the link between ownership structure and CSR activities in Japanese firms.
- 5.
The format of financial statement of financial firm differs substantially from that of non-financial firms. Therefore, the economic meanings of items in financial statement such as net income and assets are difference between non-financial firms and financial firms. Because return and risk measures we employed in this study are not comparable between two types of firms, we excluded financial firms in the empirical analysis.
- 6.
We first ran an OLS analysis and considered observations whose standardised residuals were larger than 3.0 or smaller than −3.0 to be outliers. In the subsequent two-stage LS analysis, we excluded these observations. When we computed the t-values for regression slopes, standard errors were corrected by the two-way cluster error correction method described by Petersen (2009).
- 7.
Since we are using short panel data in this research, we employ a regression model with sector dummy and year dummy variables instead of two way fixed effects model to avoid a large decrease in the degree of freedom. We conducted the Wu-Hausman’s test for endogeneity and Sargan’s over-identification test before the two-stage least-square analysis. The results of these tests are available upon request from the authors. Since Wu-Hausman’s test statistics are not significant at 5% level in most cases, endogeneity is not severe in regression models (2) and (3), though we use a two-stage regression method.
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Appendix. Adopted questions from CSR survey of Toyo Keizai CSR database
Appendix. Adopted questions from CSR survey of Toyo Keizai CSR database
Evaluation point | Weights | |
|---|---|---|
Employee relations (EMP) | 29.478 | |
1 | Ratio of female employees to total employees | −0.192 |
2 | Ratio of female managers to total managers | −0.304 |
3 | Ratio of phisically handicapped employees to total employees | −0.282 |
4 | Ratio of old employees (60 years old and over) to total employees | −0.252 |
5 | Average years of continuous employment | −0.162 |
6 | Labor turnover rate | −0.349 |
7 | Average salary for a 30 years old | −0.312 |
8 | Overtime hours | −0.328 |
9 | Overtime wage per hour | −0.341 |
10 | Rate of paid holidays taken | −0.344 |
11 | Frequency rates of industrial injuries | −0.223 |
12 | Flexible work arrangement (flex-time, short-time working, on-site child care, etc.) | −0.219 |
13 | Incentive program (internal venture, bonus plan, education program etc.) | −0.208 |
Social contribution (SC) | 51.736 | |
1 | Comprehensive evaluation (CSR department, director in charge, CSR document etc.) | −0.438 |
2 | Corporate ethics (guidelines, business ethics document, etc.) | −0.263 |
3 | Department of social actions | −0.703 |
4 | Social expenditure per employee | −0.430 |
5 | Matching gift and volunteer grant programs | −0.243 |
Security of the firm and product safeness (SS) | 45.279 | |
1 | Specialty divisions on investor relations, consumer affairs, cooperation with NPO | −0.268 |
2 | Whistle-blower policy | −0.111 |
3 | Specialty department for managing quality and safety of products and services | −0.910 |
4 | Ratio of domestic business offices with ISO9000 certification | −0.212 |
5 | Ratio of foreign business offices with ISO9000 certification | −0.206 |
Internal governance and risk management (IG) | 35.766 | |
1 | Comprehensive evaluation (whistle-blower protection, CSR manual, complaint DB, etc.) | −0.151 |
2 | Existence/nonexistence of compliance department | −0.436 |
3 | Existence/nonexistence of CIO | −0.594 |
4 | Existence/nonexistence of CFO | −0.620 |
5 | Information systems (security policy, internal/external auditing etc.) | −0.204 |
6 | Comprehensive evaluation (fair trade, compliance, closedown in the past 3 years, etc.) | −0.093 |
Environment preservations (ENV) | 49.216 | |
1 | Environmental planning department, director in charge of environmental affairs, etc | −0.496 |
2 | Environmental accounting, disclosure and auditing | −0.587 |
3 | Ratio of environment related business to total revenue | −0.427 |
4 | Promotion of procurement of eco-friendly goods and services | −0.466 |
5 | Ecolabelling (ISO14020 series etc.) | −0.036 |
6 | Environment related compliance (environmental disasters, law violation, etc.) | −0.090 |
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Suto, M., Takehara, H. (2018). Does Foreign Ownership Enhance the Corporate Social Performance of Japanese Firms?. In: Lu, H., Schmidpeter, R., Capaldi, N., Zu, L. (eds) Building New Bridges Between Business and Society. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-63561-3_11
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