Does Foreign Ownership Enhance the Corporate Social Performance of Japanese Firms?

This study examines the influence of foreign ownership on the corporate social performance (CSP) of Japanese firms in a business environment characterised by globalisation and rapidly changing ownership structures. Using our originally constructed CSP indices related to stakeholder relationships for 2007–2011 when foreign investors became a major player in the Japanese stock market, the results of our analyses show that the relationship between foreign ownership and CSP is positive and more pronounced than the relationship between domestic ownership and CSP. Furthermore, we find the increase in foreign ownership enhances CSP with four sets of 3-year sub-period data. These findings suggest that foreign investors make Japanese firms to improve CSP by motivating firms to reconsider trustworthiness of their business in global society and markets and change their corporate social responsibilities. Our results imply that foreign investors play an important role in shifting Japanese corporate governance from the traditional insider-oriented structure to a structure that is characterized by greater openness and transparency to survive and success in global competition.