Structural Changes of the Financial System and Corporate Governance in Japan

This paper examines the effects of structural changes in financial system on corporate finance and governance in Japan, and discusses the future directions. The primary purpose of the study is twofold: to identify important features of changes in financial system in Japan and their effects on corporate finance and governance; to develop insights concerning corporate governance and capital market under institutional and regulatory environments. Major shifts in the Japanese corporate governance are under way. The significant changes in the Japanese financial system are now in consideration: new standards of accounting and financial disclosure, heightened capital adequacy requirements for banks, and reforms in the financial system. As the economy continues to be sluggish, the effective role of relationship-based governance system is under serious consideration. As a result, the market-based governance system is likely more effective.