Japanese Corporate Governance and Macroeconomic Problems

Randall Morck and Masao Nakamura

Harvard Institute of Economic Research Working Papers from Harvard - Institute of Economic Research

Abstract: Japan's prolonged economic problems are due to more than faulty macro-economic policies. We do not deny the importance of bungled macro-economic policy, but argue than deeper maladies in Japanese corporate governance made that country increasingly vulnerable to such problems. We argue that Japan's main bank and financial keiretsu systems left corporate governance largely in the hands of creditors rather than shareholders. thus, Japanese governance practices did not assign effective control rights to residual claimants. This, we argue led to a widespread misallocation of capital that mired Japan in excess capacity and liquidity problems.

Date: 2000
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