Corporate Reorganization and Revitalization in Japan Project

Project Leader: Peng Xu (Faculty Fellow, RIETI / Professor, Faculty of Economics, Hosei University)

This project focuses on the determinants of post-workout performance of companies undergoing private restructurings through debt forgiveness by banks or court-ordered reorganizations under the Civil Rehabilitation Law, and asks the question: What is the role of discipline imposed by rehabilitation funds in corporate rehabilitations involving non-removal of management? Empirical analysis is used to analyze the impact of such measures as DIP (debtor in possession), debt restructuring, majority stock acquisition, and acquisition of majority seats on a board of directors. The project compares U.S. experiences in corporate rehabilitation in the 1980s and the current situation in Japan. Based on this, the project seeks to identify problems in industry revitalization related to corporate revitalization and propose measures for the future.

(1) Amid the prolonged economic slump that followed the collapse of the bubble economy, Japan witnessed a series of bank failures. Meanwhile the number of corporate bankruptcies rose and remained high for years. The decade of recession for the Japanese economy was one of corporate bankruptcies and reconstruction, and we believe it is imperative to reflect on and understand what happened in those 10 years.

(2) We seek to examine the effect of reform measures for Japan's bankruptcy laws and regulations. These include introduction of the fast-track Civil Rehabilitation Law for court-administered procedures and a series of measures for facilitating workouts, namely, the implementation of the Industrial Revitalization Law, government guidelines for early-stage corporate reorganization initiatives and those for workouts, and the establishment of the Industrial Revitalization Corporation of Japan (IRCJ) and prefectural associations for assisting the revitalization of small and medium-size enterprises (SMEs). In particular, we look into how introduction of the Civil Rehabilitation Law has reduced the time required for rehabilitation procedures and how it has affected the timing at which a debtor or creditor(s) files for court-administered procedures.

(3) We aim to study the performance of companies after rehabilitation. Court-administered reorganization procedures under either the Civil Rehabilitation Law or Corporate Reorganization Law would take a minimum of three to five years to complete. Meanwhile, many companies seeking workouts formulate business reconstruction plans requiring a minimum of three years. In consideration of these circumstances, we analyze determinants of post-workout performance of companies.

(4) We assess government policies for assisting the rehabilitation of SMEs and the effects of these policies.

(5) We examine bank disposal of bad loans, turnaround funds, and the rehabilitation or turnaround of companies.

* Research results of this project will be published, some in the form of a RIETI discussion paper or commission paper preliminary to a discussion paper.

• Peng Xu (Faculty Fellow, RIETI / Professor, Faculty of Economics, Hosei University)
  "What Are the Characteristics of Companies Prone to Become a Hostile Takeover Target?"
  RIETI Discussion Paper 06-J-008, February 2006 [PDF:323KB] (Japanese), Abstract in English
• Nobuyuki Isagawa （Kobe University)
  "Mutual Shareholding and Unwinding of Mutual Shareholding as Stockpile for Business Recovery" [PDF:148KB]
• Nobuyuki Isagawa （Kobe University), Tadayasu Yamashita (Nanzan University)
  "Debt Forgiveness and Stock Price Reaction of Lending Bank: Theory and Evidence from Japan" [PDF:228KB]

• Peng Xu (Faculty Fellow, RIETI / Professor, Hosei University)
• Nobuyuki Isagawa (Associate Professor, Kobe University)
• Akiko Kamesaka (Associate Professor, Aoyama Gakuin University)
• Soichiro Kozuka (Professor, Sophia University)
• Shoichi Tagashira (Professor, Sophia University)
• Daisuke Tsuruta (Research Associate, National Graduate Institute for Policy Studies)
• Sumio Hirose (Assistant Professor, Shinshu University)
• Junsuke Matsuo (Professor, St. Andrew's University)
• Hiroshi Maruyama (Professor, Yokohama City University)
• Fumiharu Mieno (Associate Professor, Kobe University)
• Mariko Watanabe (Researcher, Institute of Developing Economies)
• Hirohiko Nakahara (Counsellor Office, Civil Affairs Bureau, The Ministry of Justice)
• Takehiko Yasuda (Faculty Fellow, RIETI / Professor, Toyo University)
• Noriyuki Yanagawa (Faculty Fellow, RIETI / Associate Professor, The University of Tokyo)
• Hironori Ishizaka (Consulting Fellow, RIETI / Manager, Industrial Revitalization Corporation of Japan)
• Iichiro Uesugi (Fellow, RIETI)
• Shuichi Uemura (Senior Fellow, RIETI)
• Fumio Akiyoshi (Research Assistant, RIETI / Graduate School, The University of Tokyo)
• Takuma Matsuda (Research Assistant, RIETI / Graduate School, The University of Tokyo)
• Shumpei Yaoita (Research Assistant, RIETI / Associate Fellow, Graduate School of Policy and Studies, Chuo University)