Earnings Performance and Management Changes in Japanese Firms Additional Evidence

This paper investigates whether management changes in Japanese firms in times poor firm performance and whether the presence of the large shareholder makes such changes more probable than when no such shareholder exists. It also examines the sources of new presidents in Japanese firms. The large shareholder is defined as the shareholder having an equity stake of not less than 20%  but less than 50% of the outstanding stock of the firm. The sample consists of two groups of firms: (a) 77 experimental firms- firms in which the top Japanese shareholder's equity stake is at least 20% but less than 50% of the outstanding stock, and (b) 48 control firms- firms in which the top Japanese shareholder's equity stake does not exceed 5%, of the outstanding stock. Turnover observations for three years(1987-1989) are used in this study. The main findings of this paper are: (a) Top management changes are negatively associated with current returns performance. (b ) The presence of the large shareholder does not make top management changes in tines of poor returns performance more probable than when no such shareholder exists. In fact t, negative relation between changes in current returns and management changes is not observed in the presence of the large shareholder. (c) The large shareholder is the single largest external source of presidents in the experimental firms.