The Myth of the Patient Japanese: Corporate Myopia and Financial Distress in Japan and the US
NBER Working Paper No. 5818
It is widely believed that the stock-market oriented US financial system forces corporate managers to behave myopically relative to their Japanese counterparts, who operate in a bank-based system. We hypothesize that if US firms are more myopic than Japanese firms, then episodes of financial distress (when myopia should be most pronounced) should cause US firms to decrease their R&D spending (our main proxy for long-term investment) more than Japanese firms. We find no evidence that this is the case. In addition, we show that Japanese firms do not invest more than US firms after the onset of distress. Our results hold up even when US firms are compared to Japanese financial ties to their banks and are thought to be the least myopic (and the most able to weather distress). The results also withstand a variety of robustness checks. Our findings that US and Japanese firms respond similarly to financial distress cast doubt on the view that US managers are more short-sighted than their Japanese counterparts.