Governance through shame and aspiration: Index creation and corporate behavior

Akash Chattopadhyay, Matthew D. Shaffer and Charles C.Y. Wang

Journal of Financial Economics, 2020, vol. 135, issue 3, 704-724

Abstract: 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 return on equity (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 research and development (R&D) intensity. Our findings suggest that indexes can affect managerial behavior through reputational or status incentives.

Keywords: JPX-Nikkei 400 index; Corporate governance; Index inclusion; Reputation incentives; Status incentives; Return on equity; Capital efficiency; Social norms (search for similar items in EconPapers)
JEL-codes: G18 G34 G41 L51 M14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:135:y:2020:i:3:p:704-724

DOI: 10.1016/j.jfineco.2019.07.005

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