Financial System and Corporate Governance in Japan and East Asia

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This research investigates corporate governance in Japan and other East Asian countries. First, regarding research on Japan, we investigate the effectiveness of the role of the main bank which has been regarded as corporate governance of Japanese firms. The empirical results do not support the conventional view that main banks enhance the management efficiency in particular in the manufacturing industry even during the boom period of 1970s and 1980s. Instead, we find that market competition has consistently contributed to efficient corporate governance. We argue that banks could not be good monitors for lack of incentives due to regulations and the comprehensive network to prevent bank failures. Second, regarding research on other East Asian countries, we investigate corporate governance of family firms that are prevalent in those countries. We find that the ownership is very concentrated in the hands of family members. In addition, the controlling shareholders not only act as top managers but also dominate the board of directors. This structure does not change significantly after the crisis. The ownership structure may enhance the controlling shareholders to expropriate corporate assets at the expenses of minority shareholders. Internal markets that are created in particular inside family owned business groups appear to facilitate resource tunneling.