Sticks, Carrots, and Investor Behavior: Evidence from Japan

Francesco D'Ercole, Kazuo Yamada and Alexander F. Wagner
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Francesco D'Ercole: Lum University Giuseppe Degennaro
Kazuo Yamada: GSM, Kyoto University
Alexander F. Wagner: University of Zurich - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

No 25-19, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Following the 2023-2024 Tokyo Stock Exchange (TSE) initiatives to improve capital efficiency, investors favored low price-to-book (PBR) firms, particularly those with high return on equity (ROE). Further analysis suggests that investors targeted untapped value rather than responding to mere "shame" effects, though they overlooked leverage differences across high-ROE firms. TSE also required firms to disclose plans to implement value-enhancing actions. Although the information which firms had provided such disclosures was previously known, the publication of a list of non-compliant firms triggered strong market reactions. These findings demonstrate reputation's role in investor behavior while highlighting investors' limitations in processing even easily available financial information.

Keywords: Corporate governance; regulation; social norms; stock price effects; Japanese stock market (search for similar items in EconPapers)
JEL-codes: G12 G30 G41 N25 (search for similar items in EconPapers)
Pages: 33pages
Date: 2025-02
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2519

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