2018 GCGC

1-2 June 2018

Governance through Shame and Aspiration: Index Creation and Corporate Behavior


Charles Wang

Glenn and Mary Jane Creamer Associate Professor of Business Administration, Harvard Business School


Vicente Cuñat

Associate Professor / Department of Finance, London School of Economics


After decades of both de-prioritizing shareholders’ economic interests and low corporate profitability, Japan introduced the JPX400 in 2014. The index highlighted the country’s “best-run” companies by annually selecting the 400 most profitable among Japan’s large and liquid firms. Index-inclusion incentives led firms to increase ROE proportionally by 41%, though firms did not realize significant capital-market or product-market benefits from inclusion. Status incentives contributed to the observed performance improvement. Back-of-the-envelope estimates suggest that JPX400-inclusion incentives accounted for 16% (20%) of the growth in aggregate earnings (market capitalization) over our sample period. Stock indexes can transform longstanding behavior via non-pecuniary channels.

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