Corporate Governance in Transitional Economies: Lessons from the Pre-War Japanese Cotton Textile Industry
Observers of the formerly communist transitional economies urge firms there to obtain funds from a relatively few sources. They note the institutional problems the firms face: courts not working, markets not developed, statutes not written. Because these firms cannot rely on the courts to discipline managers, they predict that firms will do best if they raise their capital only from a few concentrated sources. Firms in Japan at the close of the 19th century faced a similar "transitional" institutional environment. They too faced disfunctional courts, nascent markets, and non-existent statutes. Yet the firms that succeeded in Japan were not the ones that took the tack proposed by modern observers of transitional economies. They were the ones that used little debt and raised their equity from a large number of investors. In this article, we outline how concentrated finance can introduce problems potentially as severe as the ones it supposedly mitigates, and discuss why dispersed equity did not reduce firm efficiency in late-19th century Japan. Although investors with relatively large stakes can indeed provide a firm value, they do so only under limited conditions -- and we explore what some of those conditions might be.
|Date of creation:||May 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:tky:fseres:99cf48. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office)
If references are entirely missing, you can add them using this form.