APPOINTMENTS OF OUTSIDERS TO JAPANESE BOARDS DETERMINANTS AND IMPLICATIONS FOR MANAGERS

This paper investigates the determinants of appointments of outsiders - directors previously employed by banks (bank directors) or by other nonfinancial firms (corporate directors) - to the boards of large nonfinancial Japanese corporations. Such appointments increase with poor stock performance; those of bank directors also increase with earnings losses. Turnover of incumbent top executives increases substantially in the year of both types of outside appointments. We perform a similar analysis for outside appointments in large U.S. firms and find different patterns. We conclude that banks and corporate shareholders play an important monitoring and disciplinary role in Japan.