Shareholder activism in Japan: social pressure, private cost and organized crime

Prior research provides mixed results on the capacity of American shareholder activists to improve managerial behavior. In Japan, however, alternative means of external control (e.g. take-over, litigations) are not as effective as in the U.S. Challenging the management during the annual meeting may be the only option for disgruntled shareholders. Yet, the situation is complicated by the existence of corporate racketeers who disrupt the meetings to black-mail management. Our empirical results indicate that, contrary to governmental expectations, shareholder activism leads to subsequent improvement in corporate governance, informational environment and profitability. It also enables firms to attract more foreign and individual shareholders. This suggests that the Japanese authorities should reverse their policy of discouraging shareholder activism.