2009 Reports

Comparing Exit Decisions and Corporate Governance

Harrigan, Kathryn Rudie

This study examines how widespread the similarities between U.S. and Japanese corporate governance practices have become. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States -- particularly in SEC-mandated reforms such as independent audit and compensation committees. Our results suggest that corporate governance differences between Japanese and U.S. firms may be driven, in part, by differences in directors' recognition of investors' performance expectations. In particular, results indicate that the exit barriers related to employment influence decision-making for Japanese directors more strongly than they affect U.S. directors' decisions. Board independence -- particularly with respect to audit and compensation committee membership -- reduces the height of perceived exit barriers. Results suggest that, in spite of convergence in many areas of business practices, Japanese board structures and governance practices still differ greatly from those in the United States although it does not conclude that the transition is necessarily desirable.