Foreign ownership and firm characteristics in Japan

Abstract

This paper documents that foreign investors acting in Japan may be as equally informed as the supposedly most information savvy domestic institutional investors. In the controlled experiment, the response of foreign ownership to the export ratio at the firm level changes dramatically around l 992i, when their "Japan-avoidance" is substantially mitigated, from insignificant negative to strong and significant positive. The foreign investors effectively maintain a tendency toward home bias even after shifting their funds to Japan considerably. In the meantime, the ownership response of the institutional investors to the export ratio variable is negative on average although in part not statistically significant depending on the years investigated. This well-informed class of investors is also effectively contributing to home bias even when domestically investing in Japanese firms' equity. In the high-tech segment of their investment, however, the domestic institutional investors hold more export-oriented Japanese firms The rest of equity investing patterns is remarkably similar between these two groups of investors, especially, in more recent years. We conclude that for even well informed investors, equity holding decision is at least partially influenced by "familiarity."