Financial Structure and Managerial Discretion in the Japanese Firm: An Implication of the Surge of Equity-related Bonds

Abstract

The mechanisms of corporate governance in Japan are widely believed to be different from Anglo-American mechanisms. Specifically, it is unanimously agreed that the mechanisms of the open capital market to discipline corporate managers, or the contest for corporate control such as the tender-offer, proxy fights, and hostile take-overs have not worked significantly in Japan. In Japan, mutual shareholding, the main bank and other big institutional investors known as ‘stabilizing shareholders’, and the intimate relationships between managers and employees, are thought to have prevented effectively the open capital market from exerting influence on behaviour of incumbent managers.¹

This is a revised version of a paper presented at the Second Conference on the Contemporary Japanese Economy organised by the Centre for Japanese Economic Studies, Macquarie University, Sydney, 19–20 August 1993. The author wishes to thank Thomas Cargill, David Lynch, Mitsuaki Okabe, Marc Ryser, Wataru Takahashi and Hiroshi Yoshikawa for their helpful comments. Quing-yuan Sui provided able research assitance in statistical investigations.