The Puzzling Divergence of Corporate Law: Evidence and Explanations from Japan and the United States

Abstract

The Model Business Corporation Act and the modern Japanese Commercial Code were both created in 1950 and based on the Illinois Business Corporation Act of 1933. This little-known historical quirk allows an empirical test of theories of corporate law development and convergence that have recently gained prominence in the literature. Using a fifty-year historical database of nearly 30,000 corporate law provision-observations, I find that despite globalization pressures, these corporate laws have diverged over time. I also find that the common provisions among jurisdictions appear largely to be limited to less significant enabling (non-mandatory) rules, which may further structural diversity. The finding of divergence between the corporate laws of Japan and the United States is especially interesting given the similar economic status of the countries, extensive interaction, and similar corporate and securities law starting points that evolution-toward-efficiency and path dependence theory suggests would foster similar patterns of statutory development. This Article attempts to identify precisely which institutions lead to such divergence. Through an archeological study of the development of Japanese corporate law, I argue that a likely explanation for this divergence is the tendency of the Japanese system to rely on exogenous shocks to stimulate statutory change. A substantial explanation for Japan's reliance on exogenous shocks lies in Japan's institutions, particularly in its lack of jurisdictional competition. Continued institutional differences suggest persistent corporate law divergence despite international competition.