Project Leader

WATANABE Tsutomu, Faculty Fellow

Sub-Leader

UESUGI Iichiro, Consulting Fellow

Overview

(1) Study Group on Financial and Industrial Networks
Japan's financial networks (financial-transaction and capital-transaction relations between firms and financial institutions) and industrial networks (commercial-transaction and capital-transaction relations among firms) underwent major changes as the economy emerged from a prolonged period of stagnation followed by a mild paced recovery. The purpose of this project is to empirically analyze this process of transformation based on financial data from major corporations, small and medium-sized enterprises and financial institutions, and transaction-related data from firms and financial institutions. The findings will be used to identify the structures of financial and industrial networks that will be conducive to Japan's achievement of stable growth in the future. In addition, appropriate policies and systems for the realization of this objective will be examined.

(2) Study Group on Price and Wage Dynamics
The relation between the rate of inflation and business conditions (Phillips curve) has become unstable since the 1980s. Specifically, during the bubble years of the late 1980s, prices remained stable notwithstanding overheated economic conditions. On the other hand, when the economy rapidly lost steam after the start of the 1990s, this did not result in a major decline in prices. The destabilization of the Phillips curve relationship is not unique to Japan and has also been observed in the U.S. and Europe. The aim of this project is to gain a better understanding of this phenomenon and to gain insights that will be useful in policy management. The most important feature of this project lies in its use of microdata. Past studies on price levels generally used the consumer price index and other aggregated data. However, there are clear limits to research based on aggregated data. In this project, the price-setting behavior of firms will be analyzed in detail on the micro level. This will serve as a point of departure for explaining the destabilization of the Phillips curve from a macro perspective.

Major Research Results

RIETI Discussion Papers

• "Credit Contagion and Trade Credit Supply: Evidence from Small Business Data in Japan" (TSURUTA Daisuke)
• "Bank Consolidation and Soft Information Acquisition in Small Business Lending" (OGURA Yoshiaki and UCHIDA Hirofumi)
• "Lending Competition, Relationship Banking, and Credit Availability for Entrepreneurs" (OGURA Yoshiaki)
• "Do Larger Firms Have More Interfirm Relationships?" (SAITO (UMENO) Yukiko, WATANABE Tsutomu and IWAMURA Mitsuru)
• "Multiple Bank Relationships and the Main Bank System: Evidence from a Matched Sample of Japanese Small Firms and Main Banks" (OGAWA Kazuo, Elmer STERKEN and TOKUTSU Ichiro)
• "Determinants of Japanese Companies' Financial Attitudes and Behavior - Analysis based on a survey of companies in the Kansai region" (YAMORI Nobuyoshi)

Project Leader

KAWAGUCHI Daiji, Faculty Fellow

Overview

The issues of wage and income disparities have attracted keen interest in recent years. However, very little research has been conducted using large-scale government statistics on wage and income disparities that are representative of all of Japan. The purpose of this project is to survey the changes in wage distribution between 1982 and 2002 using microdata from the "Employment Status Survey." Based on these findings, time-series changes in the speed of income mobility in lifecycle are observed to understand how the lifetime income distribution has been changing. In addition, microdata from the "Basic Survey of Japanese Business Structure and Activities" will be used to analyze the structure of labor demand with special emphasis on the difference between regular and non-regular labor.

Major Research Results

International Seminar

• "Minimum Wage and Employment"

Project Leader

TSURU Kotaro, Senior Fellow

Overview

The Japanese economy experienced a 15-year period of adjustment following the collapse of the bubble economy. As it now attempts to take off toward new frontiers, Japan needs to adopt organizational and institutional designs that will heighten and promote the potential growth and the process of innovation. In so doing, as a more essential requirement for the improvement of corporate innovation and therefore corporate performance, it is important to fundamentally review corporate organizational structures, the status of human resources, and the systems and institutions that function as the infrastructure of markets. This project starts by focusing on corporate mergers and acquisitions, which have intensified in recent years, to more fully examine the following questions: (1) What are the motives and intent of M&A activities? and (2) Are the initially anticipated effects of M&A realized, and does corporate performance actually improve after the completion of corporate reorganization? In addition, countermeasures to hostile take-over bids and their implications will also be analyzed.

Major Research Results

RIETI Discussion Papers

• "Consolidation of Banks in Japan: Causes and Consequences" (HOSONO Kaoru, SAKAI Koji and TSURU Kotaro)
• "Motivation for Adopting Takeover Defense Measures: Testing of entrenchment hypothesis for corporate managers" (TAKIZAWA Miho, TSURU Kotaro, and HOSONO Kaoru)

Project Leader

YAMAUCHI Naoto, Faculty Fellow

Sub-Leader

MORIYAMA Hiromichi, Consulting Fellow

Overview

Given the advent of an aging society with a declining population, plus major structural changes in the form of globalization and the intensification of international competition, in order to maintain economic vitality and to keep the size of the public sector within a scope that is sustainable, it is essential to implement reform toward establishing "small government." In our research, our activities will include the categorization of the forms of public-private partnership (PPP) such as private finance initiative (PFI), the designated administrator system, and market testing; the conduct of quantitative verification of the effects of reductions in fiscal expenditure; and the conduct of analyses of introduction incentives, including by means of surveys of local government bodies and non-profit organizations (NPOs). In this way we will put forward suggestions on how to shape policies for achieving efficient public services in Japan through PPP.

Project Leader

MIYAJIMA Hideaki, Faculty Fellow

Overview

As the result of macroeconomic environmental changes as well as rapid progress of deregulation and institutional reform in the second half of the 1990s, Japanese firms have participated in a large-scale experiment involving the transformation of their businesses, organizational structures and corporate governance. This has attracted keen attention both in Japan and overseas. This project, in the past, studied the actual status of governance structure reforms of Japanese firms and analyzed the impact of these changes on corporate performance. Japanese firms used to be characterized by their close ties with main banks, the cross-holding of shares, and inside directors. Nowadays, Japanese firms have come to rely more heavily on capital markets with regard to their external relations, while they maintain the features of the Japanese model in their internal structures. In this sense, Japanese firms have begun to move toward a hybrid structure, which was the point most emphasized in our findings. Based on this finding, the aim of this project during fiscal 2007 will be the following issues that previously were not fully studied.

(1) Theoretical re-examination of institutional complementarity
(2) Theoretical re-examination of owning stocks and empirical study of cross-holding of shares
(3) Significance of public listing and the economic functions of publicly listed subsidiaries
(4) Re-examination of condition-dependent governance
(5) Interrelation of business portfolios, decentralization and corporate governance
(6) Role of inter-firm competition as a precondition for autonomous governance and internal governance

While focusing on these issues, this project will seek to develop new methodologies for empirical analysis and to develop data needed for such approaches. Finally, this project will attempt to open new research frontiers in corporate governance with strong policy implications.

Major Research Results

RIETI Discussion Papers

• "The Adoption of Poison Pills and Managerial Entrenchment: Evidence from Japan" (ARIKAWA Yasuhiro and MITSUSADA Yosuke)
• "The Comparative Features and Economic Role of Mergers and Acquisitions in Japan" (MIYAJIMA Hideaki)
• "Varieties of Capitalism, Varieties of Markets: Mergers and Acquisitions in Japan, Germany, France, the UK and USA" (Gregory JACKSON and MIYAJIMA Hideaki)
• "Understanding the M&A boom in Japan: What drives Japanese M&A?" (ARIKAWA Yasuhiro and MIYAJIMA Hideaki)
• "Does Corporate Culture Matter? An Empirical Study on Japanese Firms" (HIROTA Shinichi, KUBO Katsuyuki and MIYAJIMA Hideaki)
• "Economic Analysis of M&A in Japan: International Characteristics and Economic Role" (MIYAJIMA Hideaki)

Project URL

• Developing the Research Frontier in Corporate Governance Analysis

Project Leader

AKAI Nobuo, Faculty Fellow

Overview

As Japanese society matures and social needs become increasingly diverse, institutional reforms are needed that will enable local governments to conduct efficient administrative and fiscal management at their own discretion. This requires the efficient allocation and use of administrative resources. In this context, airports constitute a key element in infrastructure assets. However, for airports to play a full role in invigorating local economies, it will be necessary to incorporate due flexibility in related institutional arrangements. Against this backdrop, this project has a two-fold purpose: to undertake financial analysis of the government's Airport Development Special Account, and to analyze the relation between airport governance structures and local invigoration initiatives by undertaking case studies and by examining factor analyses of the demand for charter services and the budget of airport terminal buildings. Research indicates that the realization of appropriate airport governance urgently requires the adoption of institutional designs that heighten local incentives.

Major Research Results

RIETI Discussion Papers

• "Empirical Analysis of Administrative and Financial Systems for Utilizing Infrastructure Assets of Local Governments: A study of the governance systems in operation at regional airports" (AKAI Nobuo, UEMURA Toshiyuki, SAWANO Koichiro, TAKEMOTO Toru and YOKOMI Muneki)

Project Leader

IWAMOTO Yasushi, Faculty Fellow

Sub-Leader

HASHIMOTO Kyoji, Faculty Fellow

Overview

Japan faces the challenges of the aging of the population, globalization, global warming and growing economic disparity even while it is undergoing significant changes in its socio-economic structure. In this project, we take the position that these ongoing changes necessitate corresponding and fundamental changes in the taxation system. Adopting various findings from tax theory and taking a medium- to long- term perspective, this project examines the features of a taxation system that would correspond to Japan's ongoing socio-economic structural changes. Specifically, the following issues will be addressed: analysis of the shifting and incidence of corporate income taxes; simulation analysis of tax reform using dynamic general equilibrium models; analysis of social security and taxation using generational accounting methodology; and economic impact of environmental taxes.

Project Leader

TSURU Kotaro, Senior Fellow

Overview

In order to study a new "form" for Japan's labor market institutions, and types of reform, we will organize a study group that will conduct theoretical and empirical research from various perspectives such as law, economics and management. While looking broadly at labor market institutions as a whole, we will also look into the interrelationships of each constituent part, and in particular will make suggestions regarding a comprehensive system of labor laws from a standpoint that transcends vertical segmentation and boundaries. When conducting our analysis we will fully embrace international viewpoints and methods of analysis, including experiences from Europe and elsewhere, and will attempt to elucidate the relationships between labor laws and institutions and the labor market and employment systems, and in turn the relationship (including the issue of non-regular employment) with economic performance.

Project Leader

NAKAMURA Ryohei, Faculty Fellow

Overview

Although the Japanese economy remains on a recovery path, local economies are experiencing growing interregional disparities and this makes the recovery trend a mottled picture. The purpose of this project is to undertake the following four analyses with an intention to establish sustainable local economic systems: (1) analysis of recycling systems in local economies; (2) prerequisite for sustainable local economies: capital and concentration; (3) prerequisite for sustainable local economies: local economic scale; and (4) overview and examination of theory of interregional disparities. Regarding (1), we have investigated Kurashiki City as a sample locality. The next step will be to develop a non-competitive entry type urban input-output table to be used in analyzing what constitutes a desirable industrial structure. Regarding (2), we are studying the relationship between urban compactness and sustainability. This study is based on detailed data from the Population Census and Census of Commerce, and takes into account our analysis of urban layout. Regarding (3) and (4), we are currently developing a disparity analysis model designed to use microdata for empirical analysis. The model under development draws on endogenous growth theories and new economic geography models.

Project Leader

SHISHIDO Zenichi, Faculty Fellow

Overview

We have frequently discussed the question, "To whom does the company belong?" in corporate governance theories. However, henceforth, it will be necessary to engage in this discussion from a different perspective: that is, what is the optimal incentive mechanism for the providers of the essential resources needed in corporate activities (managers and employees as human capital providers and shareholders and creditors as monetary capital providers). The legal system is a key part of the infrastructure that affects the outcome of incentive bargaining. However, because the legal system consists of numerous sub-divisions, no attempt has been made in the past to deal with "enterprise law" as an integrated incentive structure. In this project, Japanese and foreign experts are brought together to undertake a restatement of enterprise law, covering corporate law, insolvency law, securities law, labor law and tax law.

Major Research Results

RIETI Policy Discussion Papers

• "Conflicts of Interest with Directors and Officers in Management Buyouts (MBOs) and their Regulations" (KITAGAWA Toru)

Project URL

• Enterprise Law as a Structure for Incentives

Project Leader

TAMAI Katsuya, Faculty Fellow

Sub-Leader

AKAI Nobuo, Faculty Fellow

Overview

Japanese universities have undergone important changes in recent years, such as the incorporation of national universities as independent administrative institutions beginning in April 2005. However, it can hardly be said that all problems have been solved through these institutional reforms. The following are some of the issues and problems that remain to be addressed: the raison d'etre of national universities; the interrelation between "education" and "research" and the allocation of resources; the allocation of operating grants and competitive research funds; a framework for university governance conducive to competition and constructive rivalry among national universities; and, the management of national university hospitals. These issues not only affect the future of Japan's ivory towers, but also have an important bearing on the future of Japan's economy and society in the 21st century. The purpose of this project is to develop a framework for considering these issues. Currently, we are engaged in researching the following themes: (1) current conditions and outlook for the performance of national universities and the allocation of funds; (2) current conditions and issues related to the governance of national universities; and (3) universities and local economies.

Major Research Results

RIETI Policy Discussion Papers

• "Structural Analysis of the Competitive Environment for Education and Research Provided by Universities in Japan" (DOI Ryoji)

Project Leader

YASUDA Takehiko, Faculty Fellow

Overview

The level of entrepreneurial activity in Japan, as measured in terms of the start-up ratio, has increased slightly since the start of the 21st century, but still remains at the lowest level in international comparisons. Given the important link between entrepreneurial activity and innovation, the current situation needs to be rectified as quickly as possible. With this in mind, the government has introduced policy lending programs and various other measures to increase the start-ups. Though such policy measures should presumably be based on the information like conditions affecting entrepreneurship and obstacles to the start-ups, not enough is known in Japan compared to the U.S. and Europe due to data constraints. In particular, almost nothing is known about "latent entrepreneurs" whose behavior determines the future level of a country's entrepreneurial activities. The purpose of this project is to investigate the current conditions of entrepreneurs and latent entrepreneurs in Japan. The microdata obtained from the investigation will be used in statistical analysis to determine how the level of entrepreneurial activity can be raised and where current problems and obstacles lie.

Major Research Results

RIETI Discussion Papers

• "How Do Relationship Lenders Price Loans to Small Firms?: "Hold-Up" Costs, Transparency, and Private and Public Security" (WATANABE Wako)
• "Traditional and Innovative Approaches to Legal Reform: 'The New Company Law'" (Joseph A. McCAHERY, Erik P.M. VERMEULEN, HISATAKE Masato and SAITO Jun)
• "Debt Structure and Bankruptcy of Financially Distressed Small Businesses" (TSURUTA Daisuke and Peng XU)

CEPR-RIETI Workshops

• "Regional Integration, Financial Stability and Competitiveness: Perspectives from Europe and East Asia"
• "Financial Globalization and Stability"