Shareholder Value in the Japanese Context

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Abstract
The paper argues that for the discourse of shareholder value to be significant and effective, there needs to be an institutional structure which supports it. This institutional matrix consists of the interaction of the following features: firstly, the dominance of forms of collective investment in equities and bonds, managed by institutional investors competing for funds from savers; secondly, the existence of liquid markets in shares and bonds which enables institutional investors to exercise choice; thirdly, the provision of information to outsiders enabling choice to be exercised on the basis of existing performance as reflected (and constructed) in financial accounting data; fourthly, the power of managers to exercise choice over patterns of merger, acquisition and organizational restructuring in order to meet shareholder requirements; finally, the development of senior management compensation schemes and career hierarchies which links incentives to share prices. The paper examines how this institutional matrix contributes to the formation of shareholder value. It then considers the specific example of Japan and shows that in spite of some commitment to the rhetoric of shareholder value and the existence of certain tensions and changes, these institutional conditions do not exist and therefore there is no prospect of Japan moving to a shareholder value based model in the foreseeable future.

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