Corporate Governance in Transitional Economies: Lessons from the Pre-War Japanese Cotton Textile Industry

Posted: 29 Sep 1999

See all articles by Yoshiro Miwa

Yoshiro Miwa

Osaka Gakuin University

J. Mark Ramseyer

Harvard Law School

Multiple version iconThere are 2 versions of this paper

Date Written: August 1999

Abstract

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.

JEL Classification: N55, P21

Suggested Citation

Miwa, Yoshiro and Ramseyer, J. Mark, Corporate Governance in Transitional Economies: Lessons from the Pre-War Japanese Cotton Textile Industry (August 1999). Journal of Legal Studies, Vol. 29, Issue 1, January 2000. Available at SSRN: https://ssrn.com/abstract=181834

Yoshiro Miwa (Contact Author)

Osaka Gakuin University ( email )

2-36-1 Kishibe-Minami
Suita, Osaka 5645811
Japan

J. Mark Ramseyer

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-4878 (Phone)
617-496-6118 (Fax)

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