Abstract
The international corporate governance literature generally regards ‘comply-or-explain’ regimes as positive. By examining the recent Japanese governance reforms, we show these policies have inadvertently led to overcompliance by target firms and, importantly, non-target firms. The latter group mimicked the compliance behavior of sector‑leading firms, and this herding was to the detriment of their shareholder value. The growing demand for and the limited supply of qualified outside directors led firms to appoint individuals with lower advising ability such as busy directors. We also find a larger reduction in the market value of small and R&D intensive firms, and those with low foreign ownership and high retail ownership. These findings have important implications for the international governance literature regarding the ineffectiveness of one-size-fits-all regulation even when it is voluntary.
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