Does Passive Ownership Affect Corporate Governance? Evidence from the Bank of Japan’s ETF Purchasing Program

Previous studies examine the relationship between passive ownership and corporate governance; however, their conclusions vary. We revisit this topic by using the Bank of Japan’s (BOJ) huge stock ETF purchasing program as a cross-sectional variation of passive ownership. Empirical findings support the view that passive ownership improves the corporate governance of Japanese listed companies. Furthermore, we find that passive ownership affects various aspects of shareholder meetings: firms with large passive ownership hold their shareholder meeting on less concentrated dates, are unlikely to be with shareholder proposals, and are positively associated with the board members’ approval rates. Next, we do not find evidence that passive ownership stimulates activist funds, unlike the studies in the U.S. Finally, we find that passive ownership deconstructs Japan’s historical ownership structure, such as strategic stock holding and cross-shareholding.