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 :

November 22 2018

Last revised :

August 08 2019
SSRN Share

Keywords

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

After decades of de-prioritizing shareholders' economic interests and low corporate profitability, Japan introduced the JPX-Nikkei400 in 2014. The index highlighted the country's "best-run" companies by annually selecting the 400 most profitable of its large and liquid firms.

We find that managers competed for inclusion in the index by significantly increasing ROE, and they did so at least in part due to their reputational or status concerns. The ROE increase was predominantly driven by improvements in margins, which were in turn partially driven by cutting R&D intensity. Our findings suggest that indexes can affect managerial behavior through reputational or status incentives.

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Published in

Published in: 
Publication Title: 
Journal of Financial Economics (JFE)

Authors

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