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Abstract:
The "law matters" theory advanced in a series of empirical works by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny ("LLSV"), has become a centerpiece of recent corporate law debate. Using LLSV methodology, this Article examines the relation between legal protections and soccer success, using as the dependent variable the number of points each country has in the FIFA/Coca-Cola World Rankings. The statistically significant findings reported herein may or may not have implications of momentous import for various aspects of the human experience.

Abstract:
Corporate law as it exists in any given country today is the result of roughly 200 years of legal change and legal adaptation. Provisions that today are hailed as indicators for good corporate governance did not exist when the first statutory corporate laws were put in place. This simple insight raises the question about the evolution of corporate law. In this paper we analyze ten jurisdictions representing the three major legal families as well as transplant countries and origin countries to explore the patterns of legal change over time. We find origin countries from common law and civil law families have experienced substantial legal change and adaptation over time. By contrast, legal transplants from both legal families have often retained the transplanted law for decades despite substantial economic change. The area of corporate law where we find the most significant change over time are corporate finance provisions. Provisions concerning corporate governance structures and entry and exit rules are also investigated.

Abstract:
This Article offers new perspectives on the market for corporate control, the convergence debate, and Japanese corporate governance. We begin by applying in the corporate governance setting two related insights from other fields: from economics, the theory that there is no universally efficient organizational model; from organizational behavior, evidence that diverse groups outperform homogeneous ones. We then consider the potential for convergence toward a particular governance technology - the market for corporate control - to increase the desirable trait of diversity within economic systems. Takeovers, we argue, are not exclusively a disciplinary device, but also an engine of managerial and legal innovation.

We apply these insights to Japan through a detailed examination of previously unexplored data on Japanese M&A. We first link the historically low level of Japanese M&A activity to a thick institutional environment much more complex than the conventional focus on cross-shareholding suggests. Among the more startling findings is the existence of negative control premiums in Japanese tender offers and the role of legal shareholder protections in dampening the market for corporate control. Next, we show how the dearth of takeovers is inextricably linked to the lack of diversity in Japanese corporate practices. We then explore how recent changes in "institutions for deals" in Japan correlate with increased takeover activity, which in turn is linked to the creation of a broader range of governance practices, managerial innovations, and structural shifts in corporate lawmaking processes. The Article concludes by analyzing the implications of our findings for two academic debates: the role of functional substitutes in comparative corporate governance theory, and the impact of legal investor protections on corporate governance patterns.

Abstract:
In most countries large business enterprises today are organized as corporations. The corporation with its key attributes of independent personality, limited liability and free tradeability of shares has played a key role in most developed market economies since the 19th century and has made major inroads in emerging markets. We suggest that the resilience of the corporate form is a function of the adaptability of the legal framework to a changing environment. We analyze a country's capacity to innovate using the rate of statutory legal change, the flexibility of corporate law, and institutional change as indicators. Our findings suggest that origin countries are more innovative than transplant countries.

Abstract:
The Model Business Corporation Act and the modern Japanese Commercial Code were both created in 1950 and based on the Illinois Business Corporation Act of 1933. This little-known historical quirk allows an empirical test of theories of corporate law development and convergence that have recently gained prominence in the literature. Using a fifty-year historical database of nearly 30,000 corporate law provision-observations, I find that despite globalization pressures, these corporate laws have diverged over time. I also find that the common provisions among jurisdictions appear largely to be limited to less significant enabling (non-mandatory) rules, which may further structural diversity.

The finding of divergence between the corporate laws of Japan and the United States is especially interesting given the similar economic status of the countries, extensive interaction, and similar corporate and securities law starting points that evolution-toward-efficiency and path dependence theory suggests would foster similar patterns of statutory development. This Article attempts to identify precisely which institutions lead to such divergence. Through an archeological study of the development of Japanese corporate law, I argue that a likely explanation for this divergence is the tendency of the Japanese system to rely on exogenous shocks to stimulate statutory change. A substantial explanation for Japan's reliance on exogenous shocks lies in Japan's institutions, particularly in its lack of jurisdictional competition. Continued institutional differences suggest persistent corporate law divergence despite international competition.

Abstract:
This Article explores the dynamics of and motivations behind 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, as in the United States, 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.

But derivative suits, like most things in life, have more than one source of causation. The residuum of suits not explained by attorney incentives is best explained by a combination of (a) non-monetary factors such as altruism, spite, and social concerns, (b) corporate troublemakers (sokaiya), (c) insurance, and (d) close corporation fights. I also find that many derivative actions "piggyback" on government enforcement actions in Japan, which, especially given the lack of information available to shareholders and low white-collar crime enforcement rates, raises interesting questions regarding the relationship of public and private enforcement. These findings suggest that the difficult and messy issues of derivative suits are not unique to the relatively "litigious" or "attorney-centered" United States, and instead simply are endemic to the derivative suit mechanism.

Abstract:
In this Article, we present data on legal elites in Japan - legally trained university graduates poised to pursue successful careers either as fast-track bureaucrats or lawyers handling sophisticated business transactions. The data show a marked shift in employment patterns over the past decade: increasingly, Japan's most elite university graduates are forsaking the bureaucracy for law.

We find that changes in Japan's underlying economic, political, and legal institutions are a primary cause of this shift. We argue that this trend is not a temporary phenomenon, but reflects a more fundamental transfer of authority in Japan from the bureaucracy to the legal system. The evidence sheds new light on two longstanding debates: the impact of law and lawyers on economic success, and the bureaucracy's role in the governance of the Japanese economy.

The data we examine are hard to square with the widespread view of Japan as "Exhibit A" for the proposition that societies encourage economic growth by steering their most talented youth away from "redistributive legal careers." Rather, the data indicate that in Japan (as elsewhere), talented college graduates pursue positions of power, prestige, and profit. While those positions were once located in the elite economic bureaucracy, they are now migrating to the legal system. Contrary to the evidence of stagnation in the economic and policy environments flowing out of Japan in recent years, close examination of the career choices of Japan's most highly regarded youth reveals a society in transition.

Abstract:
Throughout Japan, people frequent hotels at which the primary purpose is not sleep, but sex. Although some establishments offer such non-sexual amenities as tanning beds, fitness equipment, and large-screen televisions, there is little question that the raison d'etre of a love hotel is, well, love (or something like it). In this Article, based largely on field observation, interview data, and quantitative analysis, I show that law has played an important but unrecognized role in the development of the love hotel industry (determining love hotel population, location, and form), and by default in the sex lives of many people in Japan. Specifically, I show first how social changes gave rise to a recent scheme to regulate love hotels. Second, in large part because of the underbreadth of the resultant controlling statute, the law invigorated the love hotel industry by creating a new class of "extralegal" love hotels and erecting barriers to entry sufficient to ensure greater market power for some surviving hotels. One underlying reason for these effects appears to be the capacity of the law effectively to "legitimize" enterprise in the minds of the public.

Abstract:
This Article examines the lost property regime of Japan, which has one of the most impressive reputations in the world for returning lost property to its rightful owner, and compares it with that of the United States. Folk legend attributes Japanese success to honesty and other-regarding preferences. In this Article, relying in part on analysis of official data, history, and statutes, as well as surveys, interviews, and "lost-wallet" experiments conducted in New York and Tokyo, I discuss another possible reason for the apparent success of lost-and-found in Japan: legal institutions that efficiently and predictably allocate and enforce possessory rights. These recognized, centuries-old rules mesh with norms, institutional structures, and economic incentives to reinforce mutually the message that each sends and yield more lost-property recovery than altruism alone.

Abstract:
This Article explores the complex relation between consumer insolvency law and suicide in Japan, where bankruptcies and suicides have increased dramatically in recent years. The statistical and interview evidence, some of which relates to the creation of a relatively efficient and socially acceptable insolvency mechanism in 2001, suggests that law is at least indirectly relevant to decisions to take one's own life. Law can bring about debt control and stigma mitigation, each of which can lead to lower levels of stress and depression, each of which can lead to lower suicide rates. Still, responses to the law, even in relatively homogeneous Japan, are varied and ambiguous, and seldom if ever is insolvency law the sole cause of suicide. The causal mechanism behind the law's apparent force appears to be a complex calculus of economic and social factors.

Abstract:
Why do Japanese workers work such long hours? Beginning with a series of cases in the 1950s, Japanese courts drastically curtailed firms' abilities to dismiss workers. As a consequence of the inability to dismiss workers legally, large Japanese firms hired a smaller number of workers than were necessary to fulfill capacity without overtime. Employers rely on the working hours of this undersized cadre of workers, carefully screened to rule out the slothful, as a buffer. In bad times, the size of the work force makes dismissal unnecessary. In good times, workers are forced to work long hours.

While these court decisions led to an increase in working hours in the 1950s, recent laws have led to a decrease. In response to interest group demands of the late 1980s and 1990s, Japan passed legislation that directly limits working hours. At the same time, it liberalized rules regarding temporary employees, allowing those persons to serve as the buffer instead of regular employees. As the statutory working-hour limits and market liberalization have taken effect, working hours have decreased.

Abstract:
The pattern of legal change in countries that have their legal systems transplanted from abroad differs markedly from countries that develop their own systems, irrespective of the legal family from which their laws come. In transplant countries, law often stagnates for long periods of time; when change takes place, it tends to be radical, if not erratic. External models remain dominant even years after the law was transplanted. Although there is some evidence that transplant countries have engaged in comprehensive legal reforms in response to the pressures of globalization, it is still too early to judge whether these new changes can be taken as a sign that the legal systems in these countries have started a process of endogenous legal evolution.

Abstract:
This Article explores condominium recovery following the 1995 Kobe (Great Hanshin) Earthquake as a case study of law's role in facilitating collective action. The quake damaged more than 2,500 condominium complexes, leaving unit owners with the collective action problem of how to dispose of the property from among their options under the Japanese Condominium Law: restore, reconstruct, or sell. The evidence from Kobe, buttressed by (or at least not inconsistent with) comparative evidence from California, shows that law was facilitative, and, at a minimum, satisfactory, in the disposition of property. This finding suggests that a law that includes (a) a high supermajority vote threshold and (b) a method for combining fragmented interests encourages timely recovery and aids owners in overcoming collective action problems in a fair and efficient manner. While market forces might lead to similar private solutions, we argue that market failures such as those seen in the Japanese condominium market probably make law a preferable option.

Abstract:
Commentators often assert that low levels of litigation in Japan are the result of either (a) social norms or (b) institutional and structural factors such as high litigation costs. This article examines another cause of nonlitigiousness: an alternative dispute resolution mechanism that handles many cases that might otherwise become lawsuits. While the system applies to all pollution disuptes, I examine a particular subset in detail: karaoke noise-related complaints. Relying on interviews and quantitative analyses in the karaoke context, I argue that an examination of both institutional factors and social capital (and their interaction) provides a significantly richer and more accurate account of Japanese dispute resolution patterns than one set of factors alone.

Abstract:
This Article provides theoretical and empirical support for the claim that organized crime competes with the state to provide property rights enforcement and protection services. Drawing on extensive data from Japan, this Article shows that, like firms in regulated environments everywhere, the structure and activities of organized criminal firms are significantly shaped by state-supplied institutions. Careful observation reveals that in Japan, the activities of organized criminal firms closely track inefficiencies in formal legal structures, including both inefficient substantive laws and a state-induced shortage of legal professionals and other rights-enforcement agents. Thus, organized crime in Japan--and, by extension, in other countries where significant gaps exist between formal property rights structures and state enforcement capacities--is the dark side of private ordering.

Regression analyses show negative correlations between membership in Japanese organized criminal firms and (a) civil cases, (b) bankruptcies, (c) reported crimes, and (d) loans outstanding. We interpret these data to support considerable anecdotal evidence that members of organized criminal firms in Japan play an active entrepreneurial role in substituting for state-supplied enforcement mechanisms and other public services in such areas as dispute mediation, bankruptcy and debt collection, (unorganized) crime control, and finance. We offer additional empirical evidence indicating that arrests of gang members do not curb the growth of organized criminal firms. These findings may have a significant normative implication for transition economies: efforts to eradicate organized crime should focus on the alteration of institutional incentive structures and the stimulation of competing rights-enforcement agents rather than on traditional crime-control activities.

Abstract:
In Japan, a sokaiya is typically defined as a nominal shareholder who either attempts to extort money from a company by threatening to disrupt its annual shareholders meeting or works for a company to suppress opposition at the meeting. Since criminal penalties were clearly imposed on management payouts to sokaiya in 1982, executives of 33 Japanese corporations (almost all of which are household names) have been convicted of making payments to sokaiya. Many commentators argue that sociocultural factors such as the desire for orderly, harmonious meetings provide a compelling explanation for sokaiya activity in Japan. I argue instead that Japanese firms pay sokaiya because Japanese legal, regulatory, and corporate governance institutions discourage corporate disclosure. These institutions make fulfilling sokaiya extortion demands less costly than the alternative choices of (a) disclosure of negative information or (b) long shareholders meetings, which lead to negative market-adjusted stock returns. By contrast, in the United States, institutions lead to different uses for negative information, while in South Korea and Italy, whose institutions bear similarities to those of Japan, sokaiya-like actors are problematic. It follows that recent modest decreases in sokaiya activity are best attributed to changes in underlying Japanese institutions caused largely by increased competition.