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The Myth of the Patient Japanese: Corporate Myopia and Financial Distress in Japan and the US

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  • Brian J. Hall
  • David E. Weinstein

Abstract

It is widely believed that the stock-market oriented US financial system forces corporate managers to behave myopically relative to their Japanese counterparts, who operate in a bank-based system. We hypothesize that if US firms are more myopic than Japanese firms, then episodes of financial distress (when myopia should be most pronounced) should cause US firms to decrease their R&D spending (our main proxy for long-term investment) more than Japanese firms. We find no evidence that this is the case. In addition, we show that Japanese firms do not invest more than US firms after the onset of distress. Our results hold up even when US firms are compared to Japanese financial ties to their banks and are thought to be the least myopic (and the most able to weather distress). The results also withstand a variety of robustness checks. Our findings that US and Japanese firms respond similarly to financial distress cast doubt on the view that US managers are more short-sighted than their Japanese counterparts.

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  • Brian J. Hall & David E. Weinstein, 1996. "The Myth of the Patient Japanese: Corporate Myopia and Financial Distress in Japan and the US," NBER Working Papers 5818, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5818
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    3. Kaoru Hosono & Masayo Tomiyama & Tsutomu Miyagawa, 2004. "Corporate governance and research and development: Evidence from Japan," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(2), pages 141-164.
    4. Hellwig, Martin, 2000. "Corporate Governance and the Financing of Investment for Structural Change," Sonderforschungsbereich 504 Publications 00-32, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Dewenter, Kathryn L., 2003. "The risk-sharing role of Japanese keiretsu business groups: evidence from restructuring in the 1990s," Japan and the World Economy, Elsevier, vol. 15(3), pages 261-274, August.
    6. Felix J. Lopez-Iturriaga & Emilio Lopez-Millan, 2015. "Institutional Framework, Corporate Ownership Structure, and R&D Investment: An International Analysis," HSE Working papers WP BRP 36/MAN/2015, National Research University Higher School of Economics.
    7. Hellwig, Martin, 1998. "On the Economics and Politics of Corporate Finance and Corporate Control," Sonderforschungsbereich 504 Publications 98-43, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    8. Gérard Charreaux & Philippe Desbrières, 1998. "Gouvernance des entreprises:valeur partenariale contre valeur actionnariale," Revue Finance Contrôle Stratégie, revues.org, vol. 1(2), pages 57-88, June.
    9. Wahal, Sunil & McConnell, John J., 2000. "Do institutional investors exacerbate managerial myopia?," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 307-329, September.
    10. Gérard Charreaux & Philippe Desbrières, 2001. "Corporate Governance: Stakeholder Value Versus Shareholder Value," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(2), pages 107-128, June.
    11. Mehdi Nehkili & Evelyne Poincelot, 2000. "La fonction R&D et la latitude managériale: une analyse théorique," Revue Finance Contrôle Stratégie, revues.org, vol. 3(1), pages 5-28, March.
    12. Jun-Koo Kang & Rene M. Stulz, 1997. "Is Bank-Centered Corporate Governance Worth It? A Cross-Sectional Analysis of the Performance of Japanese Firms during the Asset Price Deflation," NBER Working Papers 6238, National Bureau of Economic Research, Inc.

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