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Baba, N. (2009). Increased presence of foreign investors and dividend policy of Japanese firms. Pacific-Basin Finance Journal, 17, 163-174.

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Article

Foreign Institutional Ownership and the Valuation Effect of Investment and Payout Decisions

1Department of Industrial Engineering and Management, Tokyo Institute of Technology, Tokyo, Japan


Journal of Finance and Economics. 2015, Vol. 3 No. 5, 97-104
DOI: 10.12691/jfe-3-5-3
Copyright © 2015 Science and Education Publishing

Cite this paper:
Rehman Mian, Kyoko Nagata. Foreign Institutional Ownership and the Valuation Effect of Investment and Payout Decisions. Journal of Finance and Economics. 2015; 3(5):97-104. doi: 10.12691/jfe-3-5-3.

Correspondence to: Rehman  Mian, Department of Industrial Engineering and Management, Tokyo Institute of Technology, Tokyo, Japan. Email: mian.r.aa@m.titech.ac.jp

Abstract

We study the effect of foreign ownership on firm valuation through strategic corporate decisions related to investment and payouts. Using data from Japan, we find evidence that foreign institutional investors lead to higher firm value through better and efficient investment and payout decisions. Our results indicate that through increased monitoring, foreign investors mitigate the possibility of sub-optimal investments and unnecessary payouts by the management. We also find that firms with increased foreign ownership use their cash reserves in ways that significantly compliments the operating performance. Furthermore, our results also support the conjecture of a recent decline in the influence of Japanese main banks on firm’s strategic decisions.

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