Japanese Corporate Governance in Transition
This paper examines the effects of structural changes in financial system on corporate governance and finance in Japan, and discusses the future directions. The primary purpose of the study is twofold: to identify important features of changes in financial system in Japan and their effects on corporate finance and governance; to develop insights concerning corporate governance and financial system under institutional and regulatory environments. Major shifts in the Japanese corporate governance are under way. The significant changes in the Japanese financial system are now in consideration. The Japanese corporate system has worked well in the most of the post-war period. But the balance of power in the Japanese corporate system is changing. As equity financing replace bank financing as the primary source of capital in Japanese major firms, the power of main banks and the government to direct corporate behavior through funds control are waning. As the economy continues to be sluggish, the effective role of relationship-based governance system is under serious consideration. As a result, the market-based governance system is likely more effective.
Keywords: Corporate governance; Financial deregulation; Financial relationships; Japanese firms; Main bank
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