"Big Bang" deregulation and Japanese corporate governance: a survey of the issues
AbstractThe "Big Bang" deregulation of Japanese financial markets focuses on financial modernization. I argue that financial modernization is of secondary importance for improving the performance of the Japanese economy. A key long-term issue facing Japan is to maintain its high level of per capita income in the face of an aging population and slower productivity growth. To achieve this, it is important to increase the return earned on Japan's large stock of wealth. I argue the low return on wealth reflects characteristics of the Japanese corporate governance system. The proper focus of the Big Bang should be on measures to strengthen corporate governance. I identify three characteristics of the Japanese corporate governance system that lead Japanese managers to produce low returns for shareholders. First, insider stakeholders dominate corporate governance. Second, institutional investors are weak. Third, there is no market for corporate control. For each characteristic, I describe potential changes which would strengthen Japanese corporate governance. For each potential corporate governance change, I review empirical evidence on its effectiveness, its current status in Japan, and how it is addressed, if at all, in the Big Bang. I conclude that the progress of the Big Bang reforms to corporate governance has been limited.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 624.
Date of creation: 1998
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-11-20 (All new papers)
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