Melco Management Accounting Research
Discussion Paper Series
No.MDP2021-002

Internationalization and the reliance of Analyst Forecasts in
Stakeholder-oriented corporate governance:
Evidence from Japanese MNEs
September 2021

Hideaki Sakawa*
Associate Professor, Nagoya City University, Graduate School of Economics
1 Yamanohata, Mizuho-cho, Mizuho-ku, Nagoya 476-8501, Japane-mail: sakawa@econ.nagoya-cu.ac.jp
Naoki Watanabe
Associate Professor, Nagoya City University, Graduate School of Economics
Junjian Gu
Associate Professor, University of Tsukuba, Faculty of Business Sciences*Corresponding author

Maki Makoto Foundation
Nagoya, Japan
Discussion Paper Series of the Melco Management Accounting Research, in order to promote
the study of management accounting, has published this unfinished paper onto the Web. Pleaseobtain the permission of the author when citing this paper.

Internationalization and the reliance of Analyst Forecasts in
Stakeholder-oriented corporate governance:
Evidence from Japanese MNEs

Hideaki Sakawa
Naoki Watanabe
Nagoya City University

Junjian Gu
University of Tsukuba

 Corresponding author. 1 Yamanohata, Mizuho-cho, Mizuho-ku, Nagoya, 467-8501,

Japan. TEL: +81-52-872-5724. E-mail: sakawa@econ.nagoya-cu.ac.jp:

1Internationalization and the reliance of Analyst Forecasts in
Stakeholder-oriented corporate governance:
Evidence from Japanese MNEs

Abstract
This paper investigates whether reliance of analyst forecasts on management forecasts is
affected by the internationalization under a unique setting of effectively mandated
management forecasts in Japan. We find that higher internationalization would result in
lower reliance of analyst forecasts on management forecasts in Japanese corporations.
This implies that firms with higher internationalization faces the complexity anduncertainties. Second, greater foreign shareholdings enhance the reliance of analyst
forecasts on management forecasts in higher internationalized firms, suggesting theeffectiveness of foreign shareholders’ pressure. Finally, greater bank ownership would
also enhance the reliance of analyst forecasts on management forecasts under stakeholderoriented corporate governance.

Keywords: Reliance of analyst forecasts on management forecasts; Mandated
Management Forecasts; Internationalization

2

1. Introduction
The rise in financial globalization has led to greater demands for transparency andaccountability by institutional shareholders all over the world (Boone and White, 2015).
In the process of internationalization, Multi-National Entities (MNEs) being urged forbetter disclosure and more effective corporate governance mechanisms should be
expected (Aguilera et al., 2019). Better disclosure role of analyst forecasts is effectivelyfunctioned in foreign controlled MNEs (Chen et al., 2015). Due to increasing
geographical diversification, analysts of MNEs tend to face complexity of providing
accurate analyst forecasts (Duhn and Reeb, 2002). Thus, the credibility of analyst
forecasts is keenly important for highly internationalized MNEs. Therefore, we focus on
the role of analyst forecasts in Japanese MNEs with complexity due to geographicaldiversification.
Internationalization is an important driver for better disclosure in MNEs because they
have to attract foreign shareholders with shareholder-oriented logic (Aguilera et al.,2018). International corporate governance research has shown that shareholder-oriented
systems are different from stakeholder-oriented system in various ways (Shleifer and
Vishny, 1997; Aguilera et al., 2017). In a stakeholder-oriented corporate governancesystem, highly internationalized MNEs tend to adopt International Financial ReportingStandards (IFRS) (Sakawa, et al., 2021e). Financial Service Agency (2015) shows thatthe main reason Japanese MNEs adopt IFRS is to enhance disclosure quality under thecomplexity of consolidated financial reporting. This implies that internationalization is adriver to realize better disclosure in the face of complex, highly internationalized
MNEs.

3

Better disclosure in publicly listed firms is beneficial to reveal their private
information about future cash flows and mitigate the information asymmetry with
uninformed investors. Finance or accounting theory related to the evaluation of
accounting information in the capital market has been developed since the 50-year
legacy paper of Ball and Brown (1968) (Aman et al., 2019a). Better disclosure results inhigher stock liquidity (Glosten and Milgrom, 1985) and lower cost of capital (Diamondand Verrecchia, 1991). Furthermore, the improvement of transparency prevents
managers from seeking private benefits at the expense of other shareholders (Bushman
and Smith, 2001). Thus, better disclosure is the key to resolving the information
asymmetry problems between managers and shareholders.
The credibility of management forecasts has been a central issue in corporate
disclosure (King et al., 1990). Under the mandatory-effective management forecast
system in Japan, the reliance on analyst forecasts is based on the credibility ofmanagement disclosure (Aman et al., 2019b; Kato et al., 2009). Management forecasts
are functioned as an important source of information for analysts (Conroy et al., 2000),particularly at the beginning of the fiscal year when alternative sources of corporate
information are fewer in Japanese corporations (Ota, 2010; 2011). Therefore, thereliance of analyst forecasts on management forecasts increases with the credibility ofmanagement forecasts, which is the main source of management disclosure in Japanese
corporations (Aman et al., 2019b).
The role of analyst forecasts in Japanese corporations differs from U.S. ones due todifferent corporate disclosure systems. The mandatory-effective management forecast
system in Japanese corporations is differently characterized from voluntary4management forecast system in U.S. corporations (Kato et al., 2009)1. Due toincreasingly pervasive management forecasts, management forecasts have become
important information for analysts to decrease information asymmetry between
managers and outside investors (Anilowski et al., 2007).
Revealing how analyst forecasts respond to management forecasts in Japanese
corporation is an important topic for the development of finance theory (Aman et al.,2019a). In most countries like the U.S., management forecasts are voluntarily disclosed
due to concerns about the legal costs of misleading forecasts. Thus, the roles of analyst
forecasts are especially important in the enhancement of disclosure quality incorporations. However, managers in Japan are mandatorily required to disclose initial
earnings forecasts at the beginning of the fiscal year. Thus, analyst forecasts tend toreflect the information on mandatory-effective management forecasts at the beginningof accounting year when alternative sources of corporate information are fewer inJapanese corporations (Ota, 2010; 2011). Therefore, the reliance of analyst forecasts on
management forecasts (Aman et al., (2019b) is the important disclosure mechanisms inJapanese corporations.
In this paper, we aim to examine how the reliance of analyst forecasts on
management forecasts is determined in highly internationalized Japanese MNEs that1

Under Japanese mandatory effective management forecast systems (Kato et al., 2009),
the credibility of analyst forecasts is based on that of management forecasts. Thus,
reliance of analyst forecasts on management forecasts followed as Aman et al. (2019b)
is the important devices to confirm better disclosure in Japanese corporations.
Additionally, reliance on analyst forecast of management forecasts cannot be precisely
measured under U.S. voluntary management forecast systems. It is the uniqueness of
mandatory effective management forecast systems which enables to measure reliance on
analyst forecast of management forecasts.

5

face the complexity of consolidated financial reporting under the effectively mandated
management forecast system. Notwithstanding the importance of internationalization
under the financial globalization trends discussed previously (Aguilera et al., 2017;
Boone and White, 2015), the role of internationalization in the reliance of analyst
forecasts on management forecasts have not been fully investigated in prior studies.
Therefore, this paper aims to answer the following research question: Does the increaseof internationalization in Japanese firms increase the reliance of analyst forecasts on
mandatory-effective management forecasts?
We focus on Japanese corporations because the Japanese setting has several
advantages. First, Japan provides unique management forecast systems, where theforecasts in Japan are effectively mandated (Kato et al., 2009). Under the voluntary
management forecasts systems in U.S., precise research centers on the managerial
inventive to disclose forecasts (Ajinkya et al., 2005; Karamanou and Vafeas, 2005;
Verrecchia, 2001). In this sense, the examination of credibility of management forecasts
are in general difficult to make evidences in U.S. (Kato et al., 2009). Second, corporate
governance research stresses that corporate governance mechanisms in Anglo-Americanshareholder-oriented economies are completely different from those in bank-dominatedeconomies such as Germany and Japan (Shleifer and Vishny, 1997). In addition,internationalization is an important topic by the recent globalization trend. As forcorporate governance, Aguilera et al. (2019) called the corporate governance of MNEs
as “International Corporate Governance”. To analyze topics of International Corporate
Governance is a valuable study for finance and international business scholars. Third,
the Japanese Overseas Investment database provides detailed data related tointernationalization diversification proxy variables such as the number of countries

6where a firm has overseas subsidiaries and an international diversification index (Davidet al., 2010; Delios and Beamish, 1999; Lu and Beamish, 2004). Thus, we caninvestigate whether reliance of analyst forecasts on management forecasts would beentailed in firms with higher internationalization.
We investigate whether reliance on analyst forecasts is lower in Japanese firms witha higher degree of internationalization which faces complexity and uncertainties. In thispaper, we analyze the relationship between the internationalization degree and thereliance of analyst forecasts on management forecasts in firms using a sample from theperiod: 2007-2018. We measure the reliance of analyst forecasts on management
forecasts, followed as Aman et al. (2019b). We also adopt a proxy of the credibility ofanalyst forecasts measure: analyst forecast dispersion, followed as previous studies(Aman et al., 2019b; Ota, 2011). This paper examines the internationalization degree toadopt the internationalization diversification, using the Japanese Overseas Investment
database (David et al., 2010; Delios and Beamish, 1999; Lu and Beamish, 2004).
The empirical results of our paper are summarized as following three points. First,
we find that the reliance of analyst forecasts on management forecasts is lower in firms
with higher internationalization degree. Due to the complexity and uncertainties, highlyinternationalization firms would lower the reliance of analyst forecasts on management
forecasts. Second, the negative relation between the reliance of analyst forecasts on
management forecasts and internationalization is positively moderated by foreign
shareholders. As the disclosure pressure in firms is stronger in firms with greater foreign
shareholders (Aguilera et al., 2017), the reliance of analyst forecasts on management
forecasts is positively moderated by greater foreign shareholdings in firms with higher
internationalization. Finally, greater bank ownership would also enhance the reliance of7

analyst forecasts on management forecasts under stakeholder-oriented corporate
governance. Our results are also confirmed by 2SLS methods to consider about theendogeneity issue.
The contributions of our paper are summarized as several points. First, our paper
provides empirical evidences of reliance of analyst forecasts on management forecasts
in a unique setting of effectively mandated management forecasts in Japan. We find thathigher internationalization would result in lower reliance of analyst forecasts on
management forecasts. We believe that the reliance of analysts is lower in moreinternationalized MNEs because these MNEs face more complexity and uncertainties.
Second, greater foreign shareholdings enhance the reliance of analyst forecasts on
management forecasts in firms with higher internationalization degree. This implies that
disclosure pressures from foreign shareholders are stronger in internationalized MNEs.
This is consistent with the previous finding that disclosure pressures from foreign
shareholders are key to enhancing the credibility of management forecasts (Aguilera etal., 2017). This finding implies that disclosure pressure from foreign shareholders withshareholder-oriented logic effectively influences the stakeholder-oriented corporate
governance system. In addition, this finding is also consistent with Indian MNEevidence that foreign control is effective to increase the disclosure quality (Chen et. al.,2015).
The rest of our paper is organized as follows. Section 2 describes the institutional
backgrounds and hypotheses. We next introduce data, methodology, and descriptive
statistics in Section 3. Section 4 explains the empirical results. Finally, we discuss andconclude in Section 5.

8

2. Institutional Backgrounds and Hypotheses developments
2.1. Institutional Backgrounds
The Japanese corporate governance system was characterized by a stable bankownership structure during the 1990s (Aoki, 1990; Aoki et al., 1994). Long-term
relationships between banks and client firms are common in stakeholder-oriented
corporate governance systems like Japan, unlike market-oriented systems like the U.S(Desender et. al., 2016). Effective monitoring by banks mitigates agency problems inJapanese corporations (Kang and Shivdsani, 1995; Morck et al., 2000). In addition,
information asymmetry is mitigated in firms with bank ties (Sakawa et al.,2014) while
earnings quality is enhanced (Sakawa and Watanabel, 2021b).
Different from shareholder-oriented economics, internal monitoring, and inter-firm
relationships tend to effectively substitute the outside shareholder monitoring andmanagerial incentive mechanisms (Aguilera et al., 2008). In addition, Japan has a bankbased financial system whose size is comparable to the market-based system in the U.S.
(Levine, 2002). Bank monitoring would be important to enhance the credibility ofmanagement forecasts under long term bank-relationships between bank and their client
firms (Kato et al., 2009). In fact, bank monitoring mechanisms are substituted to takeeffective monitoring roles in bank-dominated economies such as Japan (Aoki, 1990;
Aoki et al., 1994).
The increase of foreign shareholders would be highly observed in Japanese
corporations post 2000s (Aguilera et al., 2017). Desender et al. (2016) describe that
foreign ownership only accounted for less than 5% in the early 1990s. Kato et al. (2009)
report that the average ownership of foreign shareholders is about 5% during 1997-

9

2007. The average ownership of foreign shareholders is about 15% in 2010 and about
20% in 2017. The increase of foreign shareholders would function for disclosurepressure in Japanese corporations (Sakawa et al., 2014). In addition, the presence of
foreign shareholders would urge managers to take higher corporate risk-taking (Sakawa
et al., 2021d). Thus, the active monitoring of foreign shareholders is expected inJapanese corporations post 2000s.
The internationalization of Japanese firms has been progressed over the last two
decades. In fact, Japan reaches the second largest FDI outflow economy in 2017
(measured as a diversity of host countries). Agency theory predicts thatinternationalization will lead to demand for better disclosure of MNEs regarding theircorporate governance mechanisms and effective monitoring roles (Aguilera et al.,2019). In this sense, internationalized MNEs are expected to realize better disclosure foroutside investors who urge the credibility of analyst forecasts.

2.2. Hypotheses Development
Under the mandatory-effective management forecast system in Japan, how analyst
forecasts respond to management forecasts is an important research question (Kato etal., 2009). The reliance of analyst forecasts on management forecasts is based on thecredibility of management forecasts (Aman et al., 2019b). Management forecasts are notnecessarily credible because managers are incentivized to be biased in their forecasts(Rogers and Stocken, 2005). Despite managers’ information advantage within the firms,
firm performance is difficult to predict when the firm faces severe external economic
conditions. On the other hand, analysts have a comparative advantage over managers of10

accessing detailed macroeconomic information. In that case, management forecasts areless accurate than analyst forecasts and they would rather use the information fromanalyst earnings forecasts to inform their forecast revisions (Hutton et al., 2012). Due tothe voluntary nature of U.S. management forecast systems, the sample of management
forecasts is quite limited compared to Japanese corporations (Aguilera et al., 2017).
Thus, the Japanese setting is more suitable to analyze the reliance of analyst forecasts
on management forecasts.
Better disclosure is a difficult task for internationalized MNEs because they tend to
face more uncertainties and business complexity. However, there might be conflicting
views on whether internationalization enhances better disclosure. Under the voluntary
disclosure management forecast system, the frequency of management disclosure ishigher in U.S. cross listed firms with higher internationalization (Shi et al., 2012). This
study implies that internationalization is a driver to realize better disclosure. On thecontrary, internationalization might decrease the disclosure quality. Due to thegeographical diversification between the home and host countries of MNEs, managers
of MNEs often have a hard time managing international businesses (Reeb et al., 1998).
In the U.S., international diversification results in less accurate analyst forecasts because
firms face more complexity due to geographical diversification (Duru and Reeb, 2002).
In addition, higher information complexity such as those of intangible assets would also
mitigate the accuracy of analyst forecasts (Gu and Fang, 2005). These previous studies
suggest that business complexity can result in lower credibility of analyst forecasts in
the U.S.
From the view of managers in Japanese internationalized MNEs, the issuances ofcredible management forecasts are difficult tasks because internationalized MNEs face11

higher degree of business complexity and uncertainties. On the other hand, the analyst
forecasts reflect the information on the management forecasts under mandatory
effective management forecasts in Japanese corporations (Conroy et al., 2000). Thus,
the reliance of analyst forecasts on management forecasts depends on the credibility ofmanagement forecasts in Japanese corporations (Aman et al., 2019b). Therefore, theanalysts depend less on management forecasts for highly complicated Japanese MNEs.
We presume that higher internationalized Japanese MNEs with greater businesscomplexity result in reducing the reliance of analyst forecasts on management forecasts
as in following Hypothesis 1.
Hypothesis 1: The reliance of analyst forecasts on management forecasts is lower infirms with higher internationalization.

The demands for the practice of better disclosure would be different among different
shareholders. Block shareholders have a strong incentive to monitor managers (Shleiferand Vishny, 1986). Institutional shareholders demand better disclosure because they
actively monitor the firms using of accurate information (Sengupta, 2004). Better
disclosure tends to be realized in firms with higher institutional shareholders(Karamanou and Vafeas, 2005). The bias of management forecasts is less optimisticallybiased in firms with a higher level of institutional shareholders (Ajinkya et al., 2005). In
this sense, better managerial disclosures are demanded by the active monitoring ofinstitutional shareholders in shareholder-oriented corporate governance.
In the process of internationalization, domestic firms must attract foreign
shareholders that possess different national corporate governance logic (Aguilera et al.,12

2018). In shareholder-oriented corporate governance dealing with foreign shareholders,
better managerial disclosure practices are keenly important for short-term profit (Bushee
and Noe, 2000). Under stakeholder-oriented corporate governance, foreign shareholders
have shareholder-oriented logic (Desender et al., 2016). Japanese corporate governanceis transitioning and foreign shareholdings are increasing (Hoshi and Kashyap, 2010)
such that foreign investors have been functioning as active monitors in Japanese
corporations (Sakawa and Watanabel, 2020; Sakawa et al., 2021d). In fact, thedisclosure pressure of foreign shareholders on managers has been shown to mitigate
information asymmetry (Sakawa et al.,2014), progress voluntary IFRS adoption(Sakawa et al., 2021e), and increase the accuracy of management forecasts (Nagata andNguyen, 2017). These previous studies imply that the credibility of management
forecasts is enhanced by greater pressure from foreign shareholders in stakeholderoriented corporate governance.
In a situation where Japanese MNEs are dealing with foreign shareholders withshareholder-oriented logic, the foreign disclosure pressure can enhance the credibility ofmanagement forecasts, which is consistent with the findings of Nagata and Nguyen(2017). The reliance of analyst forecasts on management forecasts is thus based on
credible management forecasts (Aman et al., 2019b). Thus, analysts are likely to rely on
the credibility of management forecasts and enhance the reliance of analyst forecasts on
management forecasts. Therefore, the negative relation between reliance of analyst
forecasts on management forecasts and internationalization are positively moderated byforeign shareholdings as in following Hypothesis 2.

13

Hypothesis 2: Foreign shareholders positively moderate the negative relation between
reliance of analyst forecasts on management forecasts and the degree ofinternationalization.

Japanese corporate governance is a stakeholder-oriented style of corporate
governance which is supported by the long-term relationship between a bank and theirclient firms (Descender et al., 2016). The long-term relationships of bank and theirclient firms are supported by main bank monitoring (Aoki and Patrick, 1994; Morck etal., 2000). Even after the transition era of the 2000s, main bank monitoring would be
effective in enhancing the earnings quality of their client firms (Sakawa and Watanabel,
2021b), lower the information asymmetry degree of their client firms (Sakawa et al.,2014), and mitigate the likelihood of their client firms’ accounting frauds (Sakawa and
Watanabel, 2021a). These previous studies suggest that bank monitoring enhances thequality of management disclosure in corporations with bank ties. In this case, thecredibility of management is enhanced in MNEs with bank ties. Therefore, we predictthat the reliance of analyst forecasts on management forecasts based on credible
management forecasts is higher in firms with greater bank ownership. Followed as theabove predictions, we construct the following Hypothesis 3A.
Hypothesis 3A: The reliance of analyst forecasts on management forecasts is higher infirms with greater bank ownership.

Alternately, we consider the relation between the reliance of analyst forecasts on
management forecasts and bank ownership. Managers of firms with large shareholdingsof same corporate groups may be under weaker external disclosure pressures because

14these large owners share corporate insider information (Fama and Jensen, 1983; Morcket al., 1988). In this case, even if the banks are effectively monitoring their client firms,
disclosed information may have already been shared among shareholders within thesame corporate groups. In other words, the credibility of management forecasts is notenhanced in firms with bank-ties. Thus, the reliance of analyst forecasts on management
forecasts is not higher in firms with greater bank ownership as in following Hypothesis
3B.
Hypothesis 3B: The reliance of analyst forecasts on management forecasts is not higher
in firms with greater bank ownership.

3. Data, Methodology, and Descriptive Statistics
3.1. Data
We gained data from Japanese Overseas Investment, a resource that includes reliable
Japanese FDI-related data and information on Japanese firms (Arregle et al., 2016;
Goerzen and Beamish, 2005). The data on management forecasts and analyst forecasts
are gained from the NPM database and Astra Manager. Corporate governance data aregained from Nikkei CGES (Aman et al., 2019b). We drop financial institutions because
their accounts are different from non-financial firms (Aguilera et al., 2017). We exclude
firms with missing data of management and analyst forecasts and financial variables2.
Finally, our sample comprises of 9,914 firm-year observations during 2007-20183.

2

Variables are defined in Appendix A1. We show criterion of our sample as inAppendix A2.
3

Because the fiscal year of majority of Japanese firms is no later than March 31, wechoose the firms for each of sample firms with a fiscal year ending no later than the endof March15

3.2.Methodology
To test our empirical hypothesis, we adopt regression models using annual data. We
test our hypotheses using the following equation.
𝑓(𝐴𝐹𝐷 𝑅𝑒𝑙𝑖𝑎𝑛𝑐𝑒 )= 𝛽0 + 𝛽1 𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑡𝑖𝑜𝑛𝑎𝑙𝑖,𝑡−1+ 𝛽2 𝐼𝑛𝑡𝑒𝑟𝑛𝑎𝑡𝑖𝑜𝑛𝑎𝑙𝑖,𝑡−1 ∗ 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝑖,𝑡−1 +𝛽3 𝐹𝑜𝑟𝑒𝑖𝑔𝑛 𝑖,𝑡−1 +𝛽4 𝐵𝑎𝑛𝑘 𝑖,𝑡−1+ ∑ 𝛽𝑗 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑖,𝑡−1 + 𝜃𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦𝑖 + 𝜔𝑌𝑒𝑎𝑟𝑡 + 𝜀𝑖,𝑡 ・・・(1)𝑗

AFD Reliance is a dependent variable. 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑖,𝑡−1 means control variables. All the
independent variables are measured at the beginning of the fiscal year to reduce
endogeneity concerns, followed as Nagata and Nguyen (2017). In addition, we adopt
industry dummies and year dummies to control for industry and year effects. εi,t is theerror term. The subindex i and t refers to firm and year, respectively.
The reliance of analyst forecasts on management forecasts is measured as themethodology based on Aman et al. (2019b). We compute the level of reliance analysts
place upon management's initial forecasts in making their own forecasts, namely, AFD
Reliance. AFD Reliance is defined as the following equation (2);
𝐴𝐹𝐷 𝑅𝑒𝑙𝑖𝑎𝑛𝑐𝑒𝑡 = −|𝐴𝐹𝑡 − 𝑀𝐹𝑡 | … (2)where: MFt is the initial management EPS forecast for year t and AFt is the initial
analyst consensus mean forecast EPS for year t. When the analysts rely entirely on the
management forecast, AFD Reliance will be equal to zero. On the other hand, the16consensus analyst forecast deviates from the management forecast, AFD Reliance willtake on a more negative value.
As for independent variables, the proxy of internationalization diversification as thefollowing two variables, using the Japanese Overseas Investment database (David etal., 2010; Delios and Beamish, 1999; Lu and Beamish, 2004). INTERNATIONAL ismeasured as the total number of countries where a firm has overseas subsidiaries.
INTERNATIONAL2 is measured as an index of international diversification measured as
the number of overseas subsidiaries and countries where a firm has overseas
subsidiaries. We also adopt foreign ownership (FOREIGN) as foreign shareholdings
divided by the total outstanding shares. Bank ownership (BANK) is also adopted as theshares of banks divided by the total outstanding shares (Nguyen, 2011).
We control for several firm characteristic variables which affect the reliance ofanalyst forecasts on management forecasts. Inside director ownership (INSIDE)
measures inside directors’ ownership divided by the total outstanding shares. Firms withgreater inside director ownership tend to issue management forecasts (Ajinkya et al.,2005) and revise them (Nagata and Nguyen, 2017). The credibility of management
forecasts would be higher which results in enhancing reliance of analyst forecasts on
management forecasts. Firm size (SIZE) is controlled as the logarithm of total assets.
Large firms are covered by a large number of analysts and have pressures on highquality disclosure (Nagata and Nguyen, 2017). We also adopt LEVERAGE as thecomplexity of firms, measured as total debt to equity. The firms with higher leverageface complexity on management (Coles et al., 2008). Thus, the reliance on analyst
forecast would be lower in firms with complexity. For corporate performance measures,
we adopt the return on total assets (ROA).

17

3.3. Descriptive Statistics
We show the descriptive statistics and Pearson correlation matrix of our sample in
Table 1. Panel A reports the descriptive statistics. The average reliance of analyst
forecasts on management forecasts (AFD_REL) is about -3.24. This implies that theconsensus analyst forecasts deviate slightly from management forecasts. The average of
INTERNATIONAL is 6.58. INTERNATIONAL 2 is 0.06, which is almost the same as inprevious studies (David et al., 2010; Lu and Beamish, 2004). This is consistent with theresults of previous studies, which calculate INTERNATIONAL2 of Japanese MNEs to bewithin the range of 0.04 to 0.07 (David et al., 2010; Delios and Beamish, 1999; Lu andBeamish, 2004). As for ownership structure variables, we find that the average of
FOREIGN is about 17%, and that of BANK is about 24.5%. This is consistent with therecent increase in foreign shareholder presence in Japanese corporations (Desender etal., 2016; Sakawa and Watanabel, 2020). The average of inside director ownership(INSIDE) is about 4.4%, which is consistent with previous studies (Sakawa et al.,2012).
SIZE and LEVERAGE are about 11.7 and 46% on average, which is almost the same as
Sakawa et al. (2021d). The average ROA is about 7%, which is higher than Kato et al.
(2009). In Table 2, we also show the sample correlation between the variables used in
the estimation of equation (1).
Insert Table 1 and 2

4. Empirical Results
4.1. Main Results

18

Table 3 reports the results of regression in equation (1). Using Table 3, we find that
INTERNATIONAL is significantly negative to AFD_REL for models (2) and (3),consistent with Hypothesis 1. This implies that the reliance of analyst forecasts on
management forecasts is lower in firms with higher internationalization degree. MNEs
that expanded to a large number of countries face the complexity of consolidated
financial reporting. Thus, the credibility of analyst forecasts would be lower. As aresult, the reliance on the analyst forecasts, which are based on the credible
management forecast, would be lower. We also find that the interaction terms of
INTERNATIONAL and FOREIGN are significantly positive for AFD_REL for models(3) and (5). This implies that foreign shareholders would positively moderate thenegative relation between INTERNATIONAL and AFD_REL, consistent with
Hypothesis 2. We interpret that the active monitoring of foreign shareholders would
contribute to enhancing the disclosure quality, consistent with previous studies (Nagata
and Nguyen, 2017). Finally, we show that bank ownership (BANK) is positive andsignificant to AFD_REL for models (2), (3), (4), and (5). This result supports our
Hypothesis 3A. Bank monitoring would be effective in enhancing the client firm’s
earnings quality in Japanese corporations (Sakawa and Watanabel, 2021a). We caninterpret that effective bank monitoring would enhance the reliance of analyst forecasts
on management forecasts under stakeholder-oriented corporate governance.
Insert Table 3
As for control variables, SIZE is significant and positive to AFD_REL. LEVERAGE
is significantly negative to AFD_REL. LEVERAGE is adopted as the proxy of thecomplexity of management (Coles et al., 2008). This implies that analyst forecast is19difficult to predict MNEs with complexity. Finally, ROA is significantly positive to
AFD_REL.

4.2. Robustness of the results
An important concern is that our results could be biased by the endogeneity of thefirm’s ownership structure. To address the endogeneity among AFD_REL and BANK,
we adopt the two-stage least square (2SLS) method. The instrumental variable (IV) is
Firm Age, defined as the number of years after firm was founded. This IV is relevant
because firm age can serve as a proxy of stronger bank relationships (Nguyen, 2011).
Matured firms are more likely to have a greater amount of their shares held by the bankcompared to small and medium enterprises in bank-centered financial systems (Sakawa
and Watanabel, 2021b).
Insert Table 4
In Table 4, the first stage regression results where the dependent variable is BANK arepresented. The explanatory variables include the instrument variable and several control
variables in column (1), (2), (3), and (4). The second stage regression results are shownin column (5), (6), (7), and (8)4. In Table 4, we firstly show that INTER and INTER2 are

4

We also confirmed the validity of instrument variable (Firm AGE). First, the reported

results of F tests are significant at the 1% level in all four columns (1), (2), (3), and (4),suggesting that Firm Age can provide a valid explanation for bank ownership (BANK).
Next, we obtained the values of under-identification (Anderson LM test), weakidentification (Cragg-Donald Wald test), and Stock–Yogo statistics using ivreg2 in Stata.

20

significantly negative to AFD_REL in models (5), (6), (7), and (8), consistent with
Hypothesis 1. Second, the interaction terms of INTER (INTER2) and FOREIGN are
significantly positive to AFD_REL in models (2) and (6) ((4) and (8)), consistent with
Hypothesis 2. Third, BANK is significantly positive to AFD_REL in models (5), (6), (7),and (8), consistent with Hypothesis 3A.
To confirm the robustness of results, we also adopted an alternativeinternationalization proxy, namely the ratio of foreign sales and total sales (FSALE) as
suggested by Doukas and Lang (2003). Using Table 5, we find that FSALE issignificantly negative with AFD_REL, consistent with Hypothesis 1. We also find thatthe interaction terms of FSALE and FOREIGN is also significantly positive with
AFD_REL, thus supporting our Hypothesis 2. Finally, BANK also has a significantly
positive relationship with AFD_REL, consistent with Hypothesis 3A.
Insert Table 5

5. Discussions and Conclusions
This paper investigates whether reliance of analyst forecasts on management
forecasts is affected by the internationalized diversification in Japanese corporations.
Due to the financial globalization trends, the demands for transparency andaccountability are required in internationalized MNEs (Boone and White, 2015). Japan

We found that the Cragg-Donald’s F-statistics was greater than Stock and Yogo’s (2005)
critical value (at 10% level) in all four columns (5), (6), (7), and (8), rejecting the null
hypothesis that our equation is weakly identified. We can thus interpret firm age as astrong instrument.

21

has a unique setting of effectively-mandatory management forecast systems (Kato et al.,2009). Thus, the reliance of analyst forecasts on management forecasts is based on thecredibility of management forecasts (Aman et al., 2019b).
Our main findings show that reliance of analyst forecasts on management forecasts
is lower in firms with higher internationalization degree. We can interpret that thereliability and credibility of analyst forecasts can suffer in highly internationalized firms
facing complexities and uncertainties in the process of internationalization. Consistent
with evidence from U.S. MNEs (Duru and Reeb, 2002), disclosure quality is lower in
MNEs with high geographical diversification. Our second finding shows that greater
foreign shareholdings positively moderates the relation between reliance of analyst
forecasts on management forecasts and internationalization. We interpret that greater
foreign shareholdings would give pressure for managers to enhance the credibility ofmanagement forecasts in firms with higher internationalization degree. We interpret that
disclosure pressure from greater foreign shareholders with shareholder-oriented logics(Aguilera et al., 2017) are important to enhance disclosure quality in internationalized
MNEs. Finally, we find that greater amounts of bank shareholdings also improve thereliance of analyst forecasts on management forecasts. This implies that analysts arelikely to rely on management forecasts with bank ties under stakeholder-oriented
corporate governance.
Our paper provides several contributions to the existing literature. First, our analysis
contributes to the understanding on the evaluation of accounting information in thecapital markets in an MNE setting (Ball and Brown, 1968; Aman et al., 2019a). Our
main result show that internationalization of MNEs lowers the reliance of analyst
forecasts on management forecasts because they face complexity and uncertainty.

22

Second, our study contributes to international corporate governance research byrevealing the role of foreign shareholders in MNEs (Aguilera et al., 2017). Our result
reveal that pressures from foreign shareholders enhance the reliance of analyst forecasts
on management forecasts in internationalized MNEs. Finally, this study contributes tothe literature on bank monitoring in stakeholder-oriented corporate governance (Aoki,
1990; Desender et al., 2016 etc.). We revealed that the reliance of analyst forecasts on
management forecasts is higher in firms with bank ties, suggesting the effectiveness ofbank monitoring in bank-dominated corporate governance.
We would like to propose some future research avenues as well. First, our study
does not reveal whether earnings quality itself is affected by the internationalization of
MNEs. The examination of this issue is an important future research topic. Second, theinternationalization of MNEs has progressed globally, especially in Asian Pacificcountries. Thus, future research can study whether internationalization affects the roleof analyst forecasts in other Asian Pacific countries as well.

Acknowledgments: We appreciate the helpful comments by Robert Faff (Shark), Marc
Bremer, Searat Ali, and all of the participants of the 2020 All-Japan Finance PBFJSHARK TANK PITCH Event. This manuscript corresponds to the pitch comments
provided by Shark at the event.

23

References
Aguilera, R. V., Desender, K. A., Lamy, M. L., & Lee, J, H. (2017). The
governance impact of a changing investor landscape. Journal ofInternational
Business
Studies,48(2),
195–221.
https://doi.org/10.1057/s41267-016-0043-y
Aguilera, R. V., Filatotchev, I., Gospel, H., & Jackson, G. (2008). An
organizational approach to comparative corporate governance: Costs,
contingencies, and complementarities. Organization Science, 19(3),475–492. https://doi.org/10.1287/orsc.1070.0322
Aguilera, R. V., Judge, W. Q., & Teriesen, S. A. (2018). Corporate
governance deviance. Academy of Management Review, 43(1), 87–109. https://doi.org/10.5465/AMR.2014.0394
Aguilera, R.V., Marano, V., & Haxhi, I. (2019). International corporate
governance: A review and opportunities for future research. Journal ofInternational
Business
Studies,50(4),
457–498.
https://doi.org/10.1057/s41267-019-00232-w
Ajinkya, B. B., Bhojraj, S., & Sengupta, P. (2005). The association between
outside directors, institutional investors and the properties ofmanagement earnings forecasts. Journal of Accounting Research, 43(3),343–376. https://doi.org/10.1111/j.1475-679x.2005.00174.x
Aman H, Beekes W., Berkman H., Bohmann M., Bradbury M., Chapple L.,
Chang M., Clout V., Faff, R., Han, J., Hillier, D., & Hodgson, A.
(2019a). Responsible science: Celebrating the 50-year legacy of Balland Brown (1968) using a registration-based framework. Pacific-Basin
FinanceJournal,56,
129-150.
https://doi.org/10.1016/j.pacfin.2019.05.002
Aman, H., Beekes, W., Chang, M., & Wee, M. (2019b). The role ofcredibility in the relation between management forecasts and analyst
forecasts in Japan. Pacific-Basin Finance Journal, 55, 29–45.
https://doi.org/10.1016/j.pacfin.2019.03.002
Anilowski, C. C., Mei, F., & Skinner, D. J. (2007). Does earnings guidance
affect market returns? The nature and information content of aggregate
earnings guidance. Journal of Accounting and Economics, 44(1–2), 36–63.

24

Aoki, M. (1990). Toward an economic model of the Japanese firm. Journalof Economic Literature, 28(1), 1–27.
Aoki, M., Patrick, H., & Sheard, P. (1994). The Japanese main bank system:
An introductory review. In M. Aoki & H. Patrick (Eds.), The Japanesemain bank system: Its relevancy for developing and transforming
economies (pp. 1–50). Oxford University Press.
Arregle, J. L., Miller, T., Hitt. A. M., & Beamish, P. W. (2016). How does
regional institutional complexity affect MNE internationalization?
Journal of International Business Studies, 47, 697–722.
https://doi.org/10.1057/jibs.2016.20
Ball, R., Brown, P. (1968). An empirical evaluation of accounting numbers.
Journalof
Accounting
Research,
6,
159-178.
https://doi.org/10.2307/2490232
Boone, A. L., & White, J. T. (2015). The effect of institutional ownership onfirm transparency and information production. Journal of Financial
Economics,
117(3),
508–533.
https://doi.org/10.1016/j.jfineco.2015.05.008
Bushee, B. J., & Noe, C. F. (2000). Corporate disclosure practices,institutional investors, and stock return volatility. Journal of
Accounting
Research,
38(Suppl.),171–202.
https://doi.org/10.2307/2672914
Bushman, R.M., and Smith, A.J. (2001). Financial accounting informationand corporate governance. Journal of Accounting and Economics.
32(1–3), 237–333. https://doi.org/10.1016/S0165-4101(01)00027-1
Chen, J., Chittor, R., & Vissa, B. (2015). Modernizing without westernizing:
Social structure and economic action in the Indian financial sector.
AcademyofManagement
Journal,58(2),
511-537.
https://doi.org/10.5465/amj.2012.1039
Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit
all? Journal of Financial Economics, 87(2), 329–355.
https://doi.org/10.1016/j.jfineco.2006.08.008
Conroy, R. M., Eades, K, M., & Harris, R. S. (2000). A test of the relative
pricing effects of dividends and earnings: Evidence from simultaneous
announcements in Japan. Journal of Finance, 55(3), 1199–1217.
https://doi.org/10.1111/0022-1082.00245
25

David, P., O’Brien, J. P., Yoshikawa, T., & Delios, A. (2010). Do
shareholders or stakeholders appropriate the rents from corporate
diversification? The influence of ownership structure. Academy ofManagement
Journal,53(3),
636–654.
https://doi.org/10.5465/AMJ.2010.51469005
Delios, A., & Beamish, P. W. (1999) Ownership strategy of Japanese firms:
Transactional, institutional, and experience influences. Strategic
Management
Journal,20(10),
915–933.
https://doi.org/10.1002/(SICI)1097-0266(199910)20:10<915::AIDSMJ51>3.0.CO;2-0
Desender, K., Aguilera, R. V., López-Puertas Lamy, M., & Crespi, R. (2016).
A clash of governance logics: Foreign ownership and board monitoring.
Strategic
Management
Journal,37(2),
349–369.
https://doi.org/10.1002/smj.2344
Diamond, D., & Verrecchia, R. (1991). Disclosure, liquidity and the cost ofcapital.
JournalofFinance,66(4),
1325–1355.
https://doi.org/10.1111/j.1540-6261.1991.tb04620.x
Doukas, J.A., & Lang, L.H.P. (2003). Foreign direct investment,
Diversification, and Firm Performance. Journal of International
Business Studies, 34(2), 153-172.
https://doi.org/10.1057/palgrave.jibs.8400014
Duru, A., &Reeb, D.M. (2002). International diversification and analysts’
forecast accuracy and bias. The Accounting Review, 77(2), 415-433.
Financial Service Agency (2015). IFRS adoption report.
https://www.fsa.go.jp/en/news/2015/20151113-1/01.pdf. (accessed
10th August 2021)
Glosten, L., & Milgrom, P. (1985). Bid, ask, and transaction prices in a
specialist market with heterogeneously informed traders. Journal of
Financial Economics, 14(1), 71–100. https://doi.org/10.1016/0304405X(85)90044-3
Goerzen, A., & Beamish, P. W. (2005). The effect of alliance network
diversity on multinational enterprise performance. Strategic
26

Management Journal, 26(4), 333–354.
https://doi.org/10.1002/smj.447
Gu, F., & Wang, W. (2005). Intangible assets, information complexity, andanalysts’ earnings forecasts. Journal of Business Finance &Accounting, 32(9-10), 1673-1702. https://doi.org/10.1111/j.0306686X.2005.00644.x
Hoshi, T., & Kashyap, A. (2010). Will the U.S. bank recapitalization
succeed? Eight lessons from Japan. Journal of Financial Economics,
97(3), 398–417. https://doi.org/10.3386/w14401
Hutton, A. P., Lee, L. F., & Shu, S. Z. (2012). Do managers always know
better? The relative accuracy of management and analyst forecasts.
Journalof
Accounting
Research,
50(5),
1217–1244.
https://doi.org/10.1111/j.1475-679X.2012.00461.x
Kang, J. K., & Shivdasani. A. (1995). Firm performance, corporate
governance, and top executive turnover in Japan. Journal of Financial
Economics,
38(1),
29–58.
https://doi.org/10.1016/0304-405X(94)00807-D.
Kato, K., Skinner, D. J., & Kunimura, M. (2009). Management forecasts inJapan: An empirical study of forecasts that are effectively mandated.
The
Accounting
Review,
84(5),
1575–1606.
https://doi.org/10.2308/accr.2009.84.5.1575
Karamanou, I., & Vafeas, N. (2005). The association between corporateboards, audit committees, and management earnings forecasts: An
empirical analysis. Journal of Accounting Research, 43(3), 453–486.
https://doi.org/10.1111/j.1475-679X.2005.00177.x
King, R., Pownall, G., & Waymire, G. (1990). Expectations adjustment via
timely expectations forecast disclosure: Review, synthesis, andsuggestions for future research. Journal of Accounting Literature, 9,113–144.
Levine, R. (2002). Bank-based or market-based financial systems: Which is
better? Journal of Financial Intermediation, 11(4), 398–428.
https://doi.org/10.1006/jfin.2002.0341

27

Lu, J. W., & Beamish, P. W. (2004) International diversification and firm
performance: The S curve hypothesis. Academy of Management
Journal, 47(4), 598–609.
Morck, R., Nakamura, M., & Shivdasani. A. (2000). Banks, ownership
structure, and firm value in Japan. Journal of Business, 73(4), 539–567.
https://doi.org/10.1086/209654
Nagata, K., & Nguyen, P. (2017). Ownership structure and disclosure
quality: Evidence from management forecasts revisions in Japan.
Journal of Accounting and Public Policy, 36(6), 451–469.
https://doi.org/10.1016/j.jaccpubpol.2017.09.003
Nguyen, P. (2011). Corporate governance and risk-taking: Evidence fromJapanese firms. Pacific-Basin Finance Journal, 19(3), 278–297.
https://doi.org/10.1016/j.pacfin.2010.12.002
Ota, K. (2010). The value relevance of management forecasts and theirimpact on analysts’ forecasts: empirical evidence from Japan. Abacus,
46(1), 28–59. https://doi.org/10.1111/j.1467-6281.2009.00299.x
Ota, K. (2011). Analysts’ awareness of systematic bias in management
earnings forecasts. Applied Financial Economics, 21(8), 1317–1330.
https://doi.org/10.1080/09603107.2011.570713
Reeb, D. M., Kwok, C. Y., & Beak, H. Y. (1998). Systematic risk ofmultinational corporation. Journal of International Business Studies,29, 263-279.
Rogers, J. L., & Stocken, P. C. (2005). Credibility of management forecasts.
The
Accounting
Review,
80(4),
1233–1260.
https://doi.org/10.2308/accr.2005.80.4.1233
Sakawa, H., Moriyama, K., & Watanabel, N. (2012). Relation between top
executive compensation structure and corporate governance: Evidence
from Japanese public disclosed data. Corporate Governance: An
International Review, 20(6), 593–608. https://doi.org/10.1111/j.14678683.2012.00928.x
Sakawa, H., Ubukata, M., & Watanabel, N. (2014). Market liquidity andbank-dominated corporate governance: Evidence from Japan.
International Review of Economics and Finance, 31(C), 1–11.
https://doi.org/10.1016/j.iref.2013.11.005

28

Sakawa, H., & Watanabel, N. (2020). Institutional ownership and firm
performance under stakeholder-oriented corporate governance.
Sustainability, 12(3), 1021. https://doi.org/10.3390/su12031021
Sakawa, H., & Watanabel, N. (2021a). Accounting frauds and main-bankmonitoring in Japanese corporations. Journal of Business Ethics.
forthcoming. https://doi.org/10.1007/s10551-021-04888-z
Sakawa, H., & Watanabel, N. (2021b). Earnings quality and internal control
in bank-dominated corporate governance. Asian Business &Management, 20(2), 188–220. https://doi.org/10.1057/s41291-01900100-3
Sakawa, J., & Watanabel, N. (2021c). Main bank relationships and risktaking in Japanese listed firms. Applied Economics, 53(9), 996–1012.
https://doi.org/10.1080/00036846.2020.1820444
Sakawa, H., Watanabel, N., Duppati, G., & Faff, R. (2021d). Institutional
ownership and corporate risk-taking in Japanese listed firms. Applied
Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting andEconomics, 32(1–3), 97–180. https://doi.org/10.1016/S01654101(01)00025-8

29

Appendix A1. Variable Definition

Variable

Definition

AFD_REL

AFD Reliance is defined as - |AF−MF|. Analyst Forecasts (AF) isdefined as the initial analyst (based on consensus mean) forecast EPS
for the year (t) deflated by the share price. Management Forecasts(MF) is defined as the initial management forecast of EPS for theyear (t) deflated by the share price (* 100). (Aman et al., 2019b)

INTERNATIONAL

Total number of countries in which the firm has overseas subsidiaries(Lu and Beamish, 2004）

INTERNATIONAL 2

The international diversification index (Lu and Beamish, 2004)

FOREIGN

Percentage ownership of foreign investors for the year (t-1)

BANK

SIZE

Percentage ownership of bank for the year (t-1) (Nguyen, 2011)
Percentage ownership of management and board members for theyear (t-1)
Log of total assets for the year (t-1)

LEVERAGE

Percentage of Debt-Equity ratio for the year (t-1).

ROA

Percentage of Return on Assets for the year (t-1)

INSIDE

29

Appendix A2. Sample Selection Procedures
Firm-year observations

27,088Less:

Financial institutions-1,919Firms missing stock data

-4,016

Firms missing management forecast data
Firms missing analyst forecast data
Firms missing financial data

-180
-10,137-922

Final observations

9,914

30

Table 1. Descriptive Statistics
Variable

NumberMean

Stan. dev.

Q1

MedianQ3

AFD_REL

9,914

-3.24

6.51

-3.65

-1.81

-0.76

INTERNATIONAL

9,914

6.58

8.34

1.00

4.00

9.00

INTERNATIONAL2

9,914

0.06

0.09

0.01

0.03

0.08

FOREIGN

9,914

17.08

12.28

7.18

15.10

24.76

BANK

9,914

24.48

12.63

14.76

23.64

34.13

INSIDE

9,914

4.42

8.83

0.12

0.53

4.03

SIZE

9,914

11.70

1.60

10.62

11.57

12.69

LEVERAGE

9,914

46.45

18.96

31.90

46.13

60.72

ROA

9,914

7.03

6.98

3.49

6.17

9.59

31

Table 2. Correlation Matrix
Variable

(1)

(2)

(3)

(4)

1. AFD_REL
2. INTERNATIONAL

0.005

3. INTERNATIONAL2

0.005

0.977 *

4. FOREIGN

0.061 *

0.433 *

0.398 *

5. BANK

0.060 *

0.364 *

0.335 *

0.343 *

6. INSIDE-0.020 *-0.248 *-0.225 *-0.208 *-0.390 *7. SIZE

0.051 *

0.559 *

0.548 *

0.564 *

0.528 *

-0.405 *8. LEVERAGE-0.120 *0.118 *

0.142 *

-0.096 *0.135 *

-0.062 *0.289 *

9. ROA

0.127 *

-0.080 *-0.082 *0.154 *

-0.096 *0.204 *

-0.177 *Note. Number = 9,914. * p<0.05

32

(5)

(6)

(7)

(8)

-0.294 *Table 3. OLS Estimated Results
(1)

(2)

INTERNATIONAL-0.021 *(-2.45)INTERNATIONAL* FOREIGNINTERNATIONAL2

BANKINSIDE

LEVERAGE
ROAIntercept
Industry Effects
Year Effects
NumberAdjusted R2
F Value(4)(5)-1.873 **(-2.77)

INTERNATIONAL2* FOREIGNFOREIGN

SIZE(3)
AFD_REL-0.051 **(-3.38)0.001 *
(2.31)

0.481(9.03)-0.047(-9.88)0.083(4.90)-4.229(-4.67)
Yes
Yes
9914
0.085
32.73

**
**
**
**

**

-0.024(-3.28)0.036(6.21)-0.007(-0.93)0.510(6.38)-0.052(-10.54)0.090(5.00)-5.186(-4.74)
Yes
Yes
9914
0.089
28.50

**
**

**
**
**
**

**

-0.032(-3.98)0.038(6.49)-0.008(-1.00)0.517(6.55)-0.052(-10.52)
0.091(5.03)-5.140(-4.68)
Yes
Yes
9914
0.090
27.45

**
**

**
**
**
**

**

-0.025(-3.35)0.036(6.20)-0.007(-0.92)0.511(6.39)-0.052(-10.52)0.090(5.00)-5.220(-4.75)
Yes
Yes
9914
0.089
28.51

**
**

**
**
**
**

**

-4.974(-3.44)0.107(2.35)-0.032(-4.03)0.037(6.45)-0.007(-0.99)0.519(6.56)-0.052(-10.51)
0.091(5.03)-5.191(-4.71)
Yes
Yes
9914
0.090
27.45

Note. Models (1), (2), (3), (4), and (5) are estimated using liner regression. See
Appendix A1 for definitions and measurements of the variables. + p<0.10, * p<0.05, **p<0.01

33

**
*
**
**

**
**
**
**

**

Table 4. 2SLS Estimation(1)
FIRM AGE
INTERNATIONAL

0.229 **
(34.38)-0.030 *(-2.14)INTERNATIONAL* FOREIGNINTERNATIONAL2
INTERNATIONAL2* FOREIGNFOREIGN

0.119 **
(10.12)

1st Stage(3)
BANK
0.231 **
0.229 **
(34.85)(34.48)0.316 **
(8.76)-0.012 **(-11.66)-3.736 **(-3.42)(2)0.205 **
(16.36)0.119 **
(10.19)(4)

IV regression(7)
AFD_REL(5)(6)-0.023 **(-2.65)-0.062 **(-3.53)0.001 *
(2.52)(8)0.231 **
(34.91)29.330 **(7.78)-1.145 **(-10.25)
0.194 **
(15.69)BANK
INSIDE-2.007 **(-2.92)-0.026(-3.73)0.070(3.20)
0.000(-0.02)0.418(4.21)-0.054(-10.07)0.086(5.25)-5.116(-4.69)
Yes
Yes
9798
0.088

**
**

-0.036(-4.42)0.068(3.18)-0.002(-0.19)0.436(4.57)-0.054(-10.05)
0.088(5.29)-5.065(-4.62)
Yes
Yes
9798
0.089

**
**

-0.027(-3.83)0.070(3.21)
0.000(-0.01)
0.418(4.19)-0.054(-10.06)
0.086(5.24)-5.140(-4.68)
Yes
Yes
9798
0.088

**
**

-5.997(-3.56)0.138(2.55)-0.036(-4.50)0.069(3.19)-0.002(-0.17)0.436(4.54)-0.054(-10.04)
0.088(5.29)-5.113(-4.65)
Yes
Yes
9798
0.089

**
*
**
**

-0.124 **-0.111 **-0.123 **-0.112 **(-11.80)(-10.62)(-11.73)(-10.69)
SIZE
1.809 **
1.669 **
1.837 **
1.706 **
**
**
**
**
(16.71)(15.22)(16.92)(15.48)LEVERAGE
0.026 **
0.024 **
0.026 **
0.025 **
**
**
**
**
(4.20)(3.97)(4.24)(4.06)
ROA
0.095 **
0.084 **
0.095 **
0.085 **
**
**
**
**
(4.81)(4.35)(4.81)(4.39)
Intercept
4.032 **
3.626 **
3.692 **
3.498 *********
(2.98)(2.64)(2.71)(2.53)
Industry Effects
Yes
Yes
Yes
Yes
Year Effects
Yes
Yes
Yes
Yes
Number
9798
9798
9798
9798
Adjusted R2
0.446
0.456
0.447
0.455
F Value
407.1 **
429.8 **
405.4 **
424.9 **
Under-identification (Anderson LM test)
1034.8 **1050.3 **1039 **
1053.7 **Weak identification (Cragg-Donald Wald test)
1182.31214.21189.21218.5
10% maximal IV size (Stock and Yogo)
16.38
16.38
16.38
16.38
Note. Models (5), (6), (7), and (8) are estimated using two-stage least squares for estimation results. 10% maximal IV size shows value of 10% maximal IV size of StockYogo. See Appendix A1 for definitions and measurements of the variables. + p<0.10, * p<0.05, ** p<0.01

34

Table 5. Robustness Results
Regression(1)

1st Stage(2)
AFD_REL(3)

FIRM AGE
FOREIGN SALESFOREIGN SALES* FOREIGNFOREIGN-1.975 **(-6.04)-0.016 *(-2.17)
BANK
0.033 **
(5.87)
INSIDE-0.012(-1.62)SIZE
0.470 **
(6.18)
LEVERAGE-0.050 **(-10.16)ROA
0.086 **
(5.30)
Intercept-4.994 **(-4.63)
Industry Effects
Yes
Year Effects
Yes
Number9645
Adjusted R2
0.096
F Value
29.16 **
Under-identification (Anderson LM test)
Weak identification (Cragg-Donald Wald test)
10% maximal IV size (Stock and Yogo)-2.488(-6.24)0.036(2.59)-0.023(-3.30)0.033(5.92)-0.012(-1.67)0.468(6.15)-0.050(-10.11)0.086(5.33)-4.916(-4.55)
Yes
Yes
9645
0.096
28.10

**
**
**

(4)
BANK
0.228 **
0.229 **
(34.02)(34.00)-0.972 *-0.089(-2.07)(-0.14)-0.062 *(-2.26)0.116 **
0.128 **
(9.60)(10.37)

**
+
**
**
**
**

**

-0.132(-12.53)
1.747(16.70)0.023(3.72)
0.096(4.72)
4.954(3.77)
Yes
Yes
9543
0.449
396.6

**
**
**
**
**

**

-0.131(-12.43)
1.747(16.72)0.023(3.66)
0.095(4.66)
4.831(3.66)
Yes
Yes
9543
0.449
383.2

**
**
**
**
**

(5)

IV Regression(6)
AFD_REL-2.000 **(-6.02)-0.019(-2.60)0.059(2.73)-0.005(-0.55)0.415(4.12)-0.052(-9.71)
0.089(5.33)-5.181(-4.67)
Yes
Yes
9543
0.095

**
**

**
**
**
**

-2.516(-6.25)0.036(2.56)-0.026(-3.78)0.058(2.68)-0.006(-0.62)0.416(4.15)-0.052(-9.65)0.090(5.36)-5.104(-4.58)
Yes
Yes
9543
0.096

**
*
**
**

**
**
**
**

**
1030.4 **1157.1
16.38

1031.4 **1155.7
16.38

Note. Models (1) and (2) are estimated using liner regression. Models (5) and (6) are estimated using two-stage least squares for estimation results. 10% maximal IV
shows means value of 10% maximal IV size of Stock and Yogo. See Appendix A1 for definitions and measurements of the variables. + p<0.10, * p<0.05, ** p<0.0135