Institutional Change and M&A in Japan: Diversity Through Deals

Forthcoming in GLOBAL MARKETS, DOMESTIC INSTITUTIONS: CORPORATE LAW AND GOVERNANCE IN A NEW ERA OF CROSS-BORDER DEALS, Curtis J. Milhaupt, ed., New York: Columbia University Press

64 Pages Posted: 18 Nov 2001  

Curtis J. Milhaupt

Columbia Law School

Mark D. West

University of Michigan Law School

Date Written: November 2001

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.

Suggested Citation

Milhaupt, Curtis J. and West, Mark D., Institutional Change and M&A in Japan: Diversity Through Deals (November 2001). Forthcoming in GLOBAL MARKETS, DOMESTIC INSTITUTIONS: CORPORATE LAW AND GOVERNANCE IN A NEW ERA OF CROSS-BORDER DEALS, Curtis J. Milhaupt, ed., New York: Columbia University Press. Available at SSRN: https://ssrn.com/abstract=290744 or http://dx.doi.org/10.2139/ssrn.290744

Curtis J. Milhaupt (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States
(212) 854-4926 (Phone)
(212) 854-7496 (Fax)

Mark D. West

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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