The governance of failure: An anatomy of corporate bankruptcy in Japan

Abstract

The broad trade-offs facing bankruptcy policy are, of course, not uniquely American. In this paper, we survey the Japanese corporate bankruptcy system, and present a comprehensive empirical analysis as to how it works in practice. Our framework for analysis is a variation on a theme of transaction cost economics: instruments of bankruptcy policy should effect a discriminating alignment between firms and the institutions governing failure, one which grants the services of legally centralized recontracting to those cases that warrant it, while maintaining incentive-intensity in private ordering for the others. (Williamson, 1985; 1989) This paper, through the examination of bankruptcy statistics, and the analysis of bankruptcy laws, courts and other institutions governing business failure in Japan, presents the Japanese system as a case study of corporate bankruptcy policy and institutional design.

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