'Big Bang' Deregulation and Japanese Corporate Governance: A Survey of the Issues

35 Pages Posted: 16 Oct 1998  

Michael S. Gibson

Federal Reserve Board

Date Written: September 1998

Abstract

The "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.

JEL Classification: G30, G38

Suggested Citation

Gibson, Michael S., 'Big Bang' Deregulation and Japanese Corporate Governance: A Survey of the Issues (September 1998). FRB International Finance Discussion Paper No. 624. Available at SSRN: https://ssrn.com/abstract=133552 or http://dx.doi.org/10.2139/ssrn.133552

Michael S. Gibson (Contact Author)

Federal Reserve Board ( email )

Washington, DC 20551
United States
1-202-452-2495 (Phone)
1-202-452-6424 (Fax)

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