Matthew D. Shaffer - Faculty & Research - Harvard Business School
Photo of Matthew D. Shaffer

Matthew D. Shaffer

Doctoral Student

Working Papers
  1. Governance Through Shame and Aspiration: Index Creation and Corporate Behavior

    Akash Chattopadhyay, Matthew D. Shaffer and Charles C.Y. Wang

    We study whether stock indexes can be a mechanism for transforming long-standing corporate behavior. After decades of low corporate profitability in Japan, the JPX-Nikkei400 Index was introduced in 2014. Each year the index selected 400 large and liquid firms deemed best performing in terms of profitability; membership is considered highly prestigious. We document that index-inclusion incentives have led firms to increase return on equity proportionally by 41% on average, via higher margins, efficiency, or shareholder payouts, depending on where they had slack. These incentives are driven by the prestige associated with the index, rather than direct-pecuniary or capital-market benefits. Back-of-the-envelope estimates suggest that the index-inclusion incentives accounted for 16% of the average increase in aggregate annual earnings and 20% of the growth in aggregate market capitalization over our sample period. Stock indexes can affect behavior by functioning as a source of prestige.

    Keywords: JPX-Nikkei 400 index; corporate governance; Prestige incentives; return on equity; capital efficiency; Corporate norms; Motivation and Incentives; Corporate Governance; Behavior; Investment Return; Status and Position; Japan;


    Chattopadhyay, Akash, Matthew D. Shaffer, and Charles C.Y. Wang. "Governance Through Shame and Aspiration: Index Creation and Corporate Behavior." Harvard Business School Working Paper, No. 18-010, July 2017. (Revised November 2017.)  View Details