Enjoying the Quiet Life: Corporate Decision-Making by Entrenched Managers
In this study, we empirically test “quiet life hypothesis,” which predicts that managers who are subject to weak monitoring from the shareholders avoid making difficult decisions such as risky investment and business restructuring with Japanese firm data. We employ cross-shareholder and stable shareholder ownership as the proxy variables of the strength of a manager’s defense against market disciplinary power. We examine the effect of the proxy variables on manager-enacted corporate behaviors and the results indicate that entrenched managers who are insulated from disciplinary power of stock market avoid making difficult decisions such as large investments and business restructures. However, when managers are closely monitored by institutional investors and independent directors, they tend to be active in making difficult decisions. Taken together, our results are consistent with managerial quiet life hypothesis.
We would like to thank Shin-ichi Fukuda, Masaharu Hanazaki, Takeo Hoshi, Takatoshi Ito, Alexander Ljungqvist, Hideaki Miyajima, Masao Nakamura, Kazunori Suzuki, Konari Uchida, Yupana Wiwattanakantang and participants at the 2016 Nippon Finance Association Conference and the 26th NBER-TCER-CEPR Conference. All of these individuals provided valuable comments and suggestions. This work was supported by JSPS KAKENHI Grant No.15H0337. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Kotaro Inoue is the corresponding author of this paper.
Naoshi Ikeda & Kotaro Inoue & Sho Watanabe, 2017. "Enjoying the quiet life: Corporate decision-making by entrenched managers," Journal of the Japanese and International Economies, .
Enjoying the Quiet Life: Corporate Decision-making by Entrenched Managers, Naoshi Ikeda, Kotaro Inoue, Sho Watanabe. in Corporate Governance (NBER-TCER-CEPR Conference), Allen, Fukuda, and Hoshi. 2018