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Why Shareholders Sue: The Evidence from Japan

Mark D. West

University of Michigan Law School

November 2000

Michigan Law and Economics Research Paper No. 00-010

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.

Number of Pages in PDF File: 57

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Date posted: December 1, 2000  

Suggested Citation

West, Mark D., Why Shareholders Sue: The Evidence from Japan (November 2000). Michigan Law and Economics Research Paper No. 00-010. Available at SSRN: https://ssrn.com/abstract=251012 or http://dx.doi.org/10.2139/ssrn.251012

Contact Information

Mark D. West (Contact Author)
University of Michigan Law School ( email )
625 South State Street
Professor of Law
Ann Arbor, MI 48109-1215
United States
734-647-4041 (Phone)
734-764-8309 (Fax)

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