How Does the Market Value Management Practices of Japanese Firms? Using Management Practice Survey Data

Abstract

This paper examines the extent to which firm’s management practices are valued in the marketplace using the data of interview survey. First, we divide a firm’s market value into its tangible and intangible assets, and further decompose the intangible asset value into the components attributable to advertising, to R&D, and to management practices. We find that the component attributable to management practices is much smaller than the components attributable to R&D or to advertising. We also find that among various management practices, human resource management has a significantly positive impact on Tobin’s q. Some of organizational management variables, however, have significantly negative impacts on Tobin’s q, contrary to the findings of Bloom and Van Reenen (Quarterly Journal of Economics 122:1341–1408, 2007; Journal of Economic Perspectives 24:203–224, 2010) and Bloom et al. (Academy of Management Perspectives 26:12–33, 2012), to which we referred when we conducted interview survey. Then, we further explore the organizational management practice variables to understand why they do not have significantly positive impacts on Tobin’s q. The finer analysis finds that many characteristics of management practices, which are supposed to increase market value of the firms, actually have no significant impact or a negative impact on Tobin’s q. The results suggest that information sharing and coordination within a unit or a team increase the value, while disclosing information and coordinating across units decrease the value. The results also suggest that quick decision making has different impacts on firm’s market value depending upon the contexts. Speedy decision making increases the value in case of new business development, while consultation with the people concerned increases firm’s market value in case of closing the existing business. The different results of this study from the existing ones may suggest that good management practices are different among countries.

This paper is a revised version of the RIETI discussion paper (Kawakami and Asaba 2013), which was originally presented at the Workshop on Intangibles, Innovation Policy and Economic Growth. This study is conducted as a part of the Project “Research on Intangible assets in Japan” in Japanon s c RIETI. We thank Prof. Masahisa Fujita (RIETI), Prof. Kaoru Hosono (Gakushuin University), the participants of the workshop, and the member of the project for helpful comments. This study is partly supported by a Grant-in-Aid for Scientific Research from the Ministry of Education, Culture, Sports, Science and Technology (No. 22223004).

Appendix: Questions Related to Organizational Management Practices

Implementation of organizational goals (setting target levels)

• 2. Are the settings for the individual or sectional target levels simply given to you from the division or section above you? Or are they given to you while considering the opinions of your division or section?

• 3. Are the target levels appropriately set as non-binding challenges?

• 4. Are target levels checked to ensure there is fairness between divisions or sections?

Implementation of organizational goals (permeation of goals)

• 2. Do all employees know the goals?

• 3. If goals exist on various levels (such as company-wide, divisional, and sectional goals), do all employees understand the level of priority of the goals?

• 4. Do all the employees accept the target levels and are they motivated to reach the levels?

Implementation of organizational goals (degree to which goals are achieved, checks on performance)

• 2. Are checks made to see how far goals have been achieved?

• 3. Are the checks made regularly?

• 4. In addition to the checks as a formal system, do employees make the checks voluntarily?

Implementation of organizational goals (permeation of degree to which goals are achieved, and results of checks on performance)

• 2. Are the results of such checks made openly available within your division?

• 3. Are the results of such checks made openly within not only your division but also between relevant divisions?

• 4. Are adjustments made to ensure that the degree to which goals have been achieved at different divisions is fairly compared?

Implementation of organizational goals (results of checks—handling when goals have not been achieved)

• 2. Is a meeting consisting of managerial staff and employees promptly held as soon as it is known that the goals were not achieved?

• 3. After investigation, are points to revise spread throughout the division, and are measures for handling the failure to achieve the goals promptly implemented?

• 4. Are problematic issues and countermeasures made throughout the relevant divisions, and if necessary, other divisions?

Implementation of organizational goals (results of checks—handling when goals have been achieved)

• 2. When goals are achieved are investigations made so that those goals renewed on a continuous basis or so that higher goals are set?

• 3. How long is it between the setting of higher goals and the operation/implementation of those goals?

• 4. Are these measures institutionalized on a company-wide level?

Decision making speed (ground work in case of starting a new business)

When you start a new business with other departments, how long do you spend ground work? Answer the ratio of the time for ground work within 100 % (from the beginning of the project to the start of the business).

• 1. Over 60 %

• 2. 40–59 %

• 3. 20–39 %

• 4. Under 19 %

Decision making speed (ground work in case of closing an existing business)

When you close an existing business, how long do you spend ground work? Answer the ratio of the time for ground work within 100 % (from the beginning of the project to the closing of the business).

• 1. Over 60 %

• 2. 40–59 %

• 3. 20–39 %

• 4. Under 19 %

*The number of each sub-question is the score you get when you answer “Yes” to the sub-question.