Do Japanese CEOs Matter?

What is it about?

In a country where individualism is emphasized less than in Western countries, we ask whether the CEO (shacho) of a Japanese corporation positively affects firm performance. To answer this question, we construct a shacho-firm matched panel data set in the period 1990 through 2002 of all listed 1419 Japanese manufacturing firms and their 3520 shachos. Though we find a positive abnormal stock return on the date a shacho change is announced, especially when the shacho change is non-routine, we document that this effect is short-lived. There seems to be no long-run positive change in performance or policies after a shacho change, even when the shacho change is non-routine. We are thus left to conclude that shachos do not positively matter in the Japanese corporation in this decade of a stagnant economy.

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Why is it important?

How important is an individual in an organization? It has been shown that CEOs, at least, are important in U.S. organizations. They can add to or destroy firm value. In Japan, where individualism is emphasized much less and corporate decisions are team decisions, CEOs may matter less. This is the first paper which examines the importance of CEOs in Japan, and it is the first paper that shows that they are not that important.

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