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Why Shareholders Sue: The Evidence from Japan

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  • West, Mark D

Abstract

This article explores the dynamics of shareholder litigation in a heretofore overlooked context: Japan. Following a 1993 reduction of filing fees, the number of shareholder derivative suits filed in Japan has increased dramatically, creating a database from which to study litigation incentives. This article shows that most plaintiffs in Japan lose, few suits settle, settlement amounts are low, and shareholders do not receive direct stock price benefits from suits. Most derivative suits in Japan, as in the United States, can be explained not by direct benefits to plaintiffs but by attorney incentives. Still, derivative litigation has more than one cause. The residuum of suits not wholly explained by attorney incentives is best explained by a combination of (1) nonmonetary factors, (2) corporate troublemakers, (3) insurance, and (4) "piggyback" enforcement. These findings suggest that the difficult and messy issues of derivative suits are not unique to the United States. Copyright 2001 by the University of Chicago.

Suggested Citation

  • West, Mark D, 2001. "Why Shareholders Sue: The Evidence from Japan," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 351-382, Part I Ju.
  • Handle: RePEc:ucp:jlstud:v:30:y:2001:i:2:p:351-82
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    File URL: http://dx.doi.org/10.1086/322056
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    Cited by:

    1. Milhaupt, Curtis, 2004. "A Lost Decade for Corporate Governance? What’s Changed, What Hasn’t, and Why," EIJS Working Paper Series 202, Stockholm School of Economics, The European Institute of Japanese Studies.
    2. Sergey Stepanov, 2010. "Shareholder access to manager-biased courts and the monitoring/litigation trade-off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300.
    3. Adam B. Badawi & Daniel L. Chen, 2017. "The Shareholder Wealth Effects of Delaware Litigation," American Law and Economics Review, Oxford University Press, vol. 19(2), pages 287-326.
    4. Katsuhiko Muramiya & Tomomi Takada, 2010. "Auditor Conservatism, Abnormal Accruals, and Going Concern Opinions," Discussion Papers 2010-64, Kobe University, Graduate School of Business Administration.
    5. Chen Chun-Yuan, 2016. "D&O Insurance, Corporate Governance and Mandatory Disclosure: An Empirical Legal Study of Taiwan," Asian Journal of Law and Economics, De Gruyter, vol. 7(1), pages 19-62, April.
    6. Takuya Iwasaki & Norio Kitagawa & Akinobu Shuto, 2013. "Managerial Discretion over Their Initial Earnings Forecasts," Discussion Paper Series DP2013-31, Research Institute for Economics & Business Administration, Kobe University.
    7. Takuya Iwasaki & Norio Kitagawa & Akinobu Shuto, 2015. "Managerial discretion over initial earnings forecasts," CARF F-Series CARF-F-369, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    8. Yoshiro Miwa & J. Mark Ramseyer, 2001. "The Myth of the Main Bank: Japan and Comparative Corporate Governance," CIRJE F-Series CIRJE-F-131, CIRJE, Faculty of Economics, University of Tokyo.

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