Does hedge fund activism change corporate governance? Evidence from Japan

We investigate the ability of hedge fund activism to stimulate enduring change at targeted Japanese companies in four areas: management effectiveness, managerial decisions, labour management, and market perception. In order to do this, we analyse financial data on Japanese target companies from one year and three years after 2007 and compare outcomes to the findings reported by US studies. Experience from the USA generally predicts positive changes at target companies in these four selected areas. However, in Japan, no enduring changes were apparent in the first three areas and market perception was consistently unfavourable. We attribute these outcomes principally to fundamental differences in the institutional context, suggesting that what works in one market cannot easily be transferred to others to achieve the same results. Our findings furthermore imply that pressures for global convergence of corporate governance are not overcoming the impediments identified in the varieties of capitalism literature.