Changes in the Corporate Governance System and Presidential Turnover

The article aims to shed light on how changes in the corporate governance system for Japanese firms since the 1990s have influenced presidential turnover. We analyzed the determinants of presidential turnover between 1990 and 2013 for a random sample of 500 firms listed on the First Section of the Tokyo Stock Exchange. Though our analysis found that presidential turnover sensitivity to corporate performance has not changed, we did show that ROE and the stock return are displacing ROA as corporate performance indices to which presidential turnover is most sensitive. Furthermore, while presidential turnover sensitivity to ROA is highest in firms that are believed to be most under the influence of main banks, firms with high foreign institutional investor shareholding ratios are more sensitive to ROE. These results are consistent with the curtailment in the scope of main bank activity and the increase in foreign institutional investors that have occurred since the latter half of the 1990s. The influence of outside directors, who had begun to increase from the mid-2000s, varied depending on how many sat on each board. The sensitivity of presidential turnover to performance tends to be lower in firms that have one or two outside directors and higher in firms with three or more outside directors.