Corporate Governance Systems and Firm Value: Empirical Evidence from Japan’s Natural Experiment

35 Pages Posted: 13 Jan 2011 Last revised: 1 Oct 2013

Date Written: February 7, 2012


This study explores the potential convergence of corporate governance systems by examining the value differences between Japanese firms selecting one of two legal systems. The paper presents evidence that the adoption by Japanese firms of a shareholder-oriented, more transparent, system of corporate governance creates greater corporate value in comparison to the traditional system of statutory auditors. The effect is not only significant, it is important in magnitude. This paper takes advantage of the unique opportunity afforded by Japan’s introduction of a dual system of corporate governance in 2003, when companies were offered a choice to adopt a new system of outside directors, which is a shareholder-oriented committee system. Data analysis shows a significant increase in firm valuation, as measured by Tobin’s q, for companies that adopted the committee system, even though comparative financial data show little difference. This finding is attributed to signal sending, as companies that adopted this system signal a choice toward transparency via monitoring by outsiders, suggesting a reduction of asymmetric agency costs.

Keywords: Corporate Governance, Japan, Committee System, Board of Directors

JEL Classification: G38 G34, G39, N25

Suggested Citation

Eberhart, Robert, Corporate Governance Systems and Firm Value: Empirical Evidence from Japan’s Natural Experiment (February 7, 2012). Journal of Asia Business Studies, 2012, 6(2); Rock Center for Corporate Governance at Stanford University Working Paper No. 94. Available at SSRN: or

Robert Eberhart (Contact Author)

Stanford University ( email )

Graduate School of Business
Stanford, CA 94305
United States
6503158603 (Phone)

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