| THE PROBLEM. Evidence suggests that before 1990, Japanese corporations and their investors were inclined towards the Corporate Wealth Maximization (CWM) model, because they were less dependent on the stock market for capital and their stockholders were predominantly Japanese. After the 1990's, many believe Japan shifted towards the western Shareholder Wealth Maximization (SWM) model, due to a greater dependence on capital from the stock market, which now includes more foreign stockholders. Part 1 of this paper investigates financial performance predictor variables (revenue, earnings, and shareholder equity) associated with SWM and CWM to try to measure this shift. Part 2 investigates variables associated with CWM expenditures (R&D) and advertising).;METHOD. Part 1's hypothesis is that the predictor variables, revenue and revenue less earnings, are indicative of CWM, while earnings, estimated earning, and shareholder equity are equated to SWM. The predicted variable is the market capitalization (share price times the number of shares outstanding), which represents the market value of the corporation. The sample set is companies from the Nikkei 225 index. The two periods investigated are 1982 to 1986 and 2002 to 2006.;For Part 2, the CWM proxy variables of R&D and advertising are normalized by taking their ratios with net fixed assets and net sales, then significance tested for decreases between 1987-1992 and 2002-2006.;RESULTS. The results showed a trend towards SWM in Part 1 and a trend away from CWM in Part 2. In Part 1, significant differences were seen in the relationships for SWM variables of earnings, earnings estimates, and shareholder estimates between the two periods. Relationships and differences for CWM predictor variables of revenue and revenue less earnings were inconclusive. The result for Part 2 showed a significant decrease in the CWM proxy variable, R&D/net sales, between the two periods, indicating a trend away from CWM. The other proxies, such as advertising, with net fixed asset as a normalizer, showed decreases but not significance. In summary, the data did show increasing SWM and decreasing CWM tendencies the two periods of time in Japan. |
