Recent years have seen activist investors, who claim to "reform" Japanese firms' management systems and activities by improving corporate governance, enhancing share-holder discipline, and increasing market value. These investors include investment trusts, pension funds, and private equity funds. They gain their right to make recommendations to the management by accumulating substantial stakes in undervalued firms. The shareholder activism has been studied extensively, but there is little agreement as to its systematic effects on the business activities in general. Xu (2006), for example, pointed out that some activists successfully introduced a new "discipline" into Japanese companies with financial problems. Wahal (1996), however, did not find any positive contribution of the activism to the corporate performance of American firms. This article investigates reactions of nine Japanese companies to a foreign activist investor through interview surveys, and shows that this particular investor has failed to exert any changing force on the management. ROA of seven companies increased after the activist investor had acquired large stakes, but none of the interviewees admitted any direct influence from the activist investor. Even the remaining two companies attributed their lower ROA to other factors. The foreign investor proposed to the management that they should purchase their own shares, terminate unprofitable activities, and increase salaries of the executive officers. However, the management rarely accepted these proposals. Most of the nine companies increased their dividends, but the interviewees stated that the decisions were made independently of the foreign investor. These findings suggest that the nine Japanese companies maintain long-term goals including a reasonable dividend policy and assign a priority to the benefit of their loyal shareholders, their own employees, and other partners.
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