A Behavioral Theory of the Income-Oriented Investors: Evidence from Japanese Life Insurance Companies

Hiroyuki Sasaki ()
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Hiroyuki Sasaki: Department of Regional Social Management, University of Yamanashi, Kofu 400-8510, Japan

JRFM, 2025, vol. 18, issue 7, 1-24

Abstract: This study investigates the yield-seeking behavior of income-oriented institutional investors, who are essential players in financial markets. While external pressures compelling firms to “reach for yield” are well-documented, the firm-level behavioral drivers underlying this phenomenon remain largely underexplored. Drawing on the behavioral theory of the firm, this study argues that an investor’s performance relative to their social aspiration level (the peer average) influences their yield-seeking decisions, and that this effect is moderated by “portfolio slack,” defined as unrealized gains or losses. To test this theory in the context of persistent low-yield pressure, this study constructs and analyzes a panel dataset of Japanese life insurance companies from 2000 to 2019. The analysis reveals that these investors increase their portfolio income yield after underperforming their peers and decrease it after outperforming. Furthermore, greater portfolio slack amplifies yield increases after underperformance and mitigates yield decreases after outperformance. In contrast, organizational slack primarily mitigates yield reductions after outperformance. This research extends the behavioral theory of the firm to the asset management context by identifying distinct performance feedback responses and proposing portfolio slack as an important analytical construct, thereby offering key insights for investment managers and financial regulators.

Keywords: reach for yield; unrealized gains; unrealized losses; performance feedback; aspiration level; asset management; income yield; organizational slack; portfolio slack (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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