Large shareholders and corporate governance outside the United States and United Kingdom

• Author: Alessandro Zattoni,Praveen Kumar
• DOI: http://doi.org/10.1111/corg.12077
• Published date: 01 July 2014
• Date: 01 July 2014

Editorial

Large shareholders and corporate governance

outside the United States and United Kingdom

Praveen Kumar and Alessandro Zattoni

The pioneering work of Berle and Means (1932) showed

for the first time that US listed companieshave had their

ownership rights dispersed among a large number of small

investors since the early decades of the twentieth century.

Building on this evidence, in the succeeding decades gover-

nance scholars have shown that the fragmentation of the

ownership rights among a large number of small investors

has some potentially negative consequences for the corpo-

rate governance of a firm. In particular, it creates the sepa-

ration between ownership and control, i.e. control rights are

delegated to top managers without ownership rights, which

often provides little incentive for shareholders to monitor

top managers because the monitor incurs all the costs while

the benefits are distributed only proportionally according to

the shareholder ownership (Hart, 1995).

Large shareholders can potentially address the free rider

problem associated with costly managerial monitoring

because their significant economic stake provides incentives

to actively monitor top managers (Shleifer & Vishny, 1986).

In addition, large shareholders may have sufficient voting

power to see their interests represented through the proxy

voting process (Shleifer & Vishny, 1997). In this view, then,

large investors can act as an effective governance mecha-

nism and contribute to solving the agency problem affecting

large public companies (Hart, 1995). In order to reach their

goals, large shareholders can develop different initiatives

that may be classified as exit or voice. With the former option,

dissatisfied investors decide to sell their shareholding in the

firm in order to penalize poor management, while with the

latter option they try to influence managers’ decisions by

communicating with managers and/or issuing shareholder

resolutions (Chung & Talaulicar, 2010).

However, the majority of studies on large shareholders

focus on firms operating in the US and the UK; in particular,

they emphasize the role of institutional investors as corpo-

rate watchdogs. The studies included in this issue signifi-

cantly contribute to the literature in a variety of ways. First,

they contribute by developing a better understanding of the

role of large investors both directly in shareholder meetings

and indirectly through board representatives. Moreover,

they explore these issues in two empirical contexts that

differ significantly from the well-known Anglo-American

milieu. As such, they contribute by developing a more fine-

grained perspective on corporate governance; they go

beyond traditional assumptions based on the Anglo-

American contexts and take into account the relevance of

specific national- and firm-level variables (Schiehll,

Ahmadjian and Filatotchev, 2014; Zattoni & Judge, 2012).

The first paper,a qualitative study by Buchanan,Chai, and

Deakin, explores hedge fund activism in Japan. The authors

collected rich and deep knowledge on the topic through 43

interviews with representatives of several constituents (i.e.,

targeted companies, hedge funds, institutional investors,

associations) during the period 2007–13. Basedon both inter-

views and the analysis of two specific case studies, the

authors show thatmanagers of large Japanese companies see

themselves as responsible towards a wide set of stakehold-

ers. In particular, the main stakeholders are shareholders,

customers and employees. Interestingly, domestic institu-

tional investors also share this view. The paper suggests that

the dominant principal–agent model does not fit well in all

institutional contexts. More specifically, Japanese firms have

an internal orientationdue to a limited role of the managerial

labor market and of external directors, and an inside orien-

tation of most investors. The results provide evidence

against the inevitable convergence of corporate governance

systems towards the primacy of shareholder governance.

The second paper,an empirical paper by Yeh, explores the

emergence of shareholder activism promoted by institu-

tional investors. In particular, the focus of the study is to

investigate whether legally binding shareholder resolutions

can incentivize top managers to increase performance. The

research setting is Japan, where large firms have tradition-

ally been under the dominant influence of the main banks

and where institutional investors havebeen largely absent or

passive. Data are collected with regard to 135 Japanese firms

that received shareholder proposals during the period 2004–

10. The results show that (i) firms receiving shareholder

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Corporate Governance: An International Review, 2014, 22(4): 294–295

© 2014 John Wiley & Sons Ltd

doi:10.1111/corg.12077