Governance through Shame and Aspiration: Index Creation and Corporate Behavior

Governance through Shame and Aspiration: Index Creation and Corporate Behavior

Akash Chattopadhyay, Matthew D. Shaffer, Charles Wang

Series number :

Serial Number: 
567/2018

Date posted :

July 19 2018

Last revised :

July 18 2018
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Keywords

  • JPX-Nikkei 400 index • 
  • Corporate governance • 
  • Status incentives • 
  • Return on equity • 
  • Capital efficiency • 
  • social norms

After decades of both de-prioritizing shareholders' economic interests and low corporate profitability, Japan introduced the JPX400 in 2014. The index highlighted the country's "best-run" companies by annually selecting the 400 most profitable among Japan's large and liquid firms.

Index-inclusion incentives led firms to increase ROE proportionally by 41%, though firms did not realize significant capital-market or product-market benefits from inclusion. Status incentives contributed to the observed performance improvement. Back-of-the-envelope estimates suggest that JPX400-inclusion incentives accounted for 16% (20%) of the growth in aggregate earnings (market capitalization) over our sample period. Stock indexes can transform longstanding behavior via non-pecuniary channels.
 

Authors

Real name:
Akash Chattopadhyay
Real name:
Matthew D. Shaffer