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The Value of Prominent Directors: Corporate Governance and Bank Access in Transitional Japan


  • Miwa, Yoshiro
  • Ramseyer, J Mark


Although observers urge transitional economies to rely on banks rather than stock markets, in early twentieth-century Japan, large firms did not rely on debt. Instead, they sold stock. To mitigate agency slack, they sometimes recruited prominent investors to their boards. In this context, we use data on cotton-spinning firms to explore the relationship between board composition and profitability. First, firms that hired prominent directors had higher profits in succeeding years. We hypothesize that these directors brought monitoring skills and certifying credibility: they knew what to expect, knew when and how to intervene, and had the reputations necessary to certify firm quality credibly. Second, firms did not further increase their profitability by appointing directors with access to a bank or to spinning technology. We conclude that the firms probably had access to funds and technological assistance without board connections. Copyright 2002 by the University of Chicago.

Suggested Citation

  • Miwa, Yoshiro & Ramseyer, J Mark, 2002. "The Value of Prominent Directors: Corporate Governance and Bank Access in Transitional Japan," The Journal of Legal Studies, University of Chicago Press, vol. 31(2), pages 273-301, June.
  • Handle: RePEc:ucp:jlstud:v:31:y:2002:i:2:p:273-301

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    References listed on IDEAS

    1. Joskow, Paul L, 1988. "Asset Specificity and the Structure of Vertical Relationships: Empirical Evidence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(1), pages 95-117, Spring.
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    Cited by:

    1. Miwa, Yoshiro & Ramseyer, J Mark, 2002. "Banks and Economic Growth: Implications from Japanese History," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 127-164, April.
    2. Yoshiro Miwa & J. Mark Ramseyer, 2004. "Industrial Finance Before the Financial Revolution: Japan at the Turn of the Last Century (Subsequently published in "Explanations in Economic History", 2005, vol. 43, 94-118. )," CARF F-Series CARF-F-018, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Klaus Gugler, 2013. "The determinants of rent extraction in the parent-subsidiary relation," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(2), pages 343-362, May.
    4. Allen, Franklin, et al., 2010. "How Important Historically Were Financial Systems for Growth in the U.K., U.S., Germany, and Japan?," Working Papers 10-27, University of Pennsylvania, Wharton School, Weiss Center.
    5. Yoshiro Miwa & J. Mark Ramseyer, 2004. "Industrial Finance Before the Financial Revolution: Japan at the Turn of the Last Century," CIRJE F-Series CIRJE-F-311, CIRJE, Faculty of Economics, University of Tokyo.
    6. Miwa, Yoshiro & Ramseyer, J. Mark, 2006. "Japanese industrial finance at the close of the 19th century: Trade credit and financial intermediation," Explorations in Economic History, Elsevier, vol. 43(1), pages 94-118, January.

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