The security market and the changing government role in Japan

Abstract

PurposeThe purpose of this paper is to explain how current security market regulations in Japan have evolved following Japan’s corporate governance reforms, which began in the 1990s after the bursting of a massive financial bubble. As part of the reform, Japan aimed to introduce US-style corporate governance mechanisms.Design/methodology/approachThis paper first explains the process behind Japan’s corporate governance reforms using the theory of selective adaptation. By doing so, the various changes that have taken place in the regulations of security markets are also explained. The paper concludes with a discussion of the limitations of transplanting US-style corporate governance mechanisms in Japan and the implications for the functioning of Japan’s security markets.FindingsWhile applying a selective adaptation framework to Japan’s efforts to transplant US-style corporate governance mechanisms to its own markets, the author found that certain Japan-specific business practices, such as its heavy reliance onkeiretsucorporate groupings, may interfere with the market-based business practices and free competition which characterize the US system. This in turn places limitations on the functioning of US-style security markets in Japan.Originality/valueThis paper explains the limitations of government regulation on security markets in Japan, which may be of interest to both public and private sector analysts. This paper focusses on Japan’s experience of transplanting US-style corporate governance mechanisms to Japan. The author expect that Japan’s experience will be of much interest to China, South Korea and other countries in East Asia, where pyramidal and other types of business groups play important roles in their economies.