Strategic Switching of Governance Mechanisms

We find that firms appoint outside directors when the time of extending takeover defense measures at annual shareholders’ meetings arrives. In contrast, firms do not change their board structures when they need not extend defense measures. We observe this strategic switching among firms whose largest shareholder is an institutional investor after the introduction of the Japanese stewardship code. Our findings suggest that codes affect corporate governance, but they do not improve or impair the quality of governance.