Corporate Restructuring In Japan Research Articles

The decline in bank-led corporate restructuring in Japan: 1981-2010

Using a unique dataset on all major corporate restructuring events in Japan between 1981 and 2010, we assess changes in the role of the main bank in guiding corporate turarounds, and the economic consequences of these changes for distressed firms. We identify firms in distress among all listed firms based on accounting data, and we separately identify firms undergoing corporate restructuring based on a newspaper search for the Japanese term “saiken”. Even though the ratio of distressed firms has not declined, the incidence of saiken restructuring by such firms has become less frequent after the 1990s, indicating a decline in the governance and rescue role of the main bank. When firms undergo saiken, they adopt real adjustments in terms of labor, assets and finance. While the intensity of these adjustments has also declined over time, saiken firms make more significant adjustments than distressed firms that do not undergo restructuring. The role of saiken was an important part of corporate renewal in Japan, and it has declined. In line with existing research, these findings underscore changes in Japanese corporate governance, in particular regarding the decline of the monitoring and restructuring function of the main bank.

Corporate restructuring in Japan: Who monitors the monitor?

Peek and Rosengren [Peek, J., Rosengren, E., 2005. Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review 95, 1144–1166] showed that, when the bubble economy era ended, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in evergreening. This is the first comprehensive study to empirically analyze the economics of private debt restructurings of financially distressed companies in Japan, where the corporate monitoring mechanism is not market based but large-stakeholder based – typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from long-term relationships with the distressed firms. Our study, however, finds that private restructurings led by them failed because of delays in implementing fundamental solutions. Forbearance in addressing the needs of distressed firms demonstrates the weakness of such stakeholders in instituting discipline, hence the need for a system to “monitor the monitor”.

Corporate Restructuring in Japan: Who Monitors the Monitor?

This is the first comprehensive study to empirically analyze the economics of private (out-of-court) debt restructurings of financially distressed Japanese companies spanning the period from the burst of the bubble economy of Japan in 1990 to the time when the excessive bad debt problems of major firms were recognized as resolved in March 2005 on the basis of the stock prices of more than 200 restructurings. In Japan the mechanism of corporate monitoring is not market based (shareholder and public bondholder based) but large-investor based (large stakeholder based)typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from their long-term relationship with the distressed firms. In contrast, however, this study finds that out-of-court restructurings led by banks or affiliated companies failed to gain the trust of the market because of their procrastinations in implementing fundamental solutions; and therefore, there is a need for third-party monitoring. Compared to the analysis of out-of-court settlements in the United States by Gilson et al. (1990), this study finds that agreements on out-of-court restructuring in Japan are attained more easily than in the United States. However, without third-party mediation, no fundamental changes can be expected from the restructurings. This forbearance by banks and affiliated companies in addressing the needs of distressed firms indicates the weakness of banks and affiliated companies in instituting discipline among themselves, thereby showing the importance of instituting a system to monitor the monitor.

Macro Effects of Corporate Restructuring in Japan

Macro Effects of Corporate Restructuring in Japan

Macro Effects of Corporate Restructuring in Japan

This paper presents a framework for quantitatively evaluating the macroeconomic effects of corporate restructuring and applies it to Japan. Using firm-level financial statement data, it estimates total factor productivity (TFP) of individual Japanese firms. Given the estimated distribution of productivity across firms, the paper simulates the effect of optimal restructuring, that is, reallocation of resources from less-productive firms to more-productive ones, on the dynamic path of aggregate output. The results show that the benefits of restructuring could substantially exceed the costs.

Corporate restructuring in Japan: an event-study analysis

The implementation of the Commercial Rehabilitation Law (CRL) on April 1, 2000, was considered a key event in setting up the official infrastructure supporting corporate restructuring in Japan. This study evaluates the stock price impact of restructuring announcements before and after the CRL implementation using event-study analysis. Following the CRL implementation, the results suggest an improvement in market credibility of restructuring announcements based on better disclosure, mergers, and to a lesser extent, labor force reductions. In contrast, the credibility of restructuring announcements aimed at reducing excess capital deteriorated.

Corporate Restructuring in Japan: An Event-Study Analysis

The implementation of the Commercial Rehabilitation Law (CRL) on April 1, 2000, was considered a key event in setting up the official infrastructure supporting corporate restructuring in Japan. This study evaluates the stock price impact of restructuring announcements before and after the CRL implementation using event-study analysis. Following the CRL implementation, the results suggest an improvement in market credibility of restructuring announcements based on improvements in disclosure, mergers, and to a lesser extent, labor force reductions. In contrast, the credibility of restructuring announcements aimed at reducing excess capital deteriorated.

Corporate Restructuring in Japan: An Event-Study Analysis

The implementation of the Commercial Rehabilitation Law (CRL) on April 1, 2000 was considered a key event in setting up the official infrastructure supporting corporate restructuring in Japan. This study evaluates the stock price impact of restructuring announcements before and after the CRL implementation using event-study analysis. Following the CRL implementation, the results suggest an improvement in market credibility of restructuring announcements based on improvements in disclosure, mergers, and to a lesser extent, labor force reductions. In contrast, credibility of restructuring announcements aimed at reducing excess capital deteriorated.

Corporate Restructuring in Japan:An Event-Study Analysis

The implementation of the Commercial Rehabilitation Law (CRL) on April 1, 2000 was considered a key event in setting up the official infrastructure supporting corporate restructuring in Japan. This study evaluates the stock price impact of restructuring announcements before and after the CRL implementation using event-study analysis. Following the CRL implementation, the results suggest an improvement in market credibility of restructuring announcements based on improvements in disclosure, mergers, and to a lesser extent, labor force reductions. In contrast, credibility of restructuring announcements aimed at reducing excess capital deteriorated.