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Corporate restructuring in Japan

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  • Chan-Lau, Jorge

    ()
    (International Monetary Fund)

Abstract

Corporate restructuring, by addressing the excess capacity and debt overhang problems currently plaguing Japan’s corporate sector, is a key element in revitalizing the country’s economy. Towards this end, Japanese firms have been adopting new business practices and the government has engineered an ambitious and comprehensive package of reforms during the past years. The implementation of the Commercial Rehabilitation Law (CRL) on April 1, 2000, signaled that most of the official infrastructure conducive towards real restructuring was already in place. This article analyzes whether the new official infrastructure has helped the corporate sector to address the problems of excess capacity and to improve the current corporate governance system. Using event-study analysis, it finds that the market credibility of restructuring announcements based on better disclosure, mergers, and to a lesser extent, labor forced reductions, increased after the CRL implementation. Announcements aimed at reducing excess capacity were viewed skeptically by the market, though. These results suggest that reducing excess capital in Japan still requires substantial work.

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Bibliographic Info

Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 7 (2003)
Issue (Month): ()
Pages: 85-92

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Handle: RePEc:ris:jofitr:1303

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Keywords: Corporate restructuring; Commercial Rehabilitation Law;

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  1. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
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  3. Carlin, Wendy & Mayer, Colin, 1999. "Finance, Investment and Growth," CEPR Discussion Papers 2233, C.E.P.R. Discussion Papers.
  4. Kang, Jun-Koo & Shivdasani, Anil, 1999. "Alternative mechanisms for corporate governance in Japan: An analysis of independent and bank-affiliated firms," Pacific-Basin Finance Journal, Elsevier, vol. 7(1), pages 1-22, February.
  5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  6. Randall Morck & Masao Nakamura, 1999. "Banks and Corporate Control in Japan," Journal of Finance, American Finance Association, vol. 54(1), pages 319-339, 02.
  7. Yafeh, Yishay, 2000. "Corporate Governance in Japan: Past Performance and Future Prospects," Oxford Review of Economic Policy, Oxford University Press, vol. 16(2), pages 74-84, Summer.
  8. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
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