Vol. 1: Explanation of Overview and Purpose of Research Project

Date: April 11, 2007
Place: Research Institute of Economy, Trade and Industry, Meeting Room 1121

This project is titled "Enterprise Law as a Structure for Incentives" and has three objectives. The first objective is to establish a clear overall picture of enterprise law. Somewhat surprisingly, until now there have been relatively few attempts to bring together different areas of law, including corporation law, securities regulation, bankruptcy law, labor law, and taxation law, and examine them under a single enterprise law. Enterprise law has been defined as a legal system that influences incentive negotiations among providers of resources essential to corporate activity. It has been remarked, though, that the focus needs to go beyond legal enforcement to take into account the importance of private enforcement. Others have also noted anti-monopoly legislation and laws on intellectual property rights have some influence on incentive negotiations.

In discussing the impact of the legal system on incentive negotiations, it is important for individual actors to offer each other incentives in order to alleviate concerns about putting up capital and to maximize their profits. Specifically, it is important to take into account how the legal system affects the balance between the level of autonomy required by those providing human capital (managers and employees) and the powers of oversight required by those providing monetary capital (shareholders and creditors).

The government is a fifth player and needs to be considered in the examination. Although it has been claimed that the government has a natural incentive to maximize tax revenue, it would be desirable from a prescriptive standpoint to explore the possibility of it designing a system of taxation that would eliminate disincentives.

The second objective is to examine, from different perspectives, which legal systems influence the incentives of individual actors and in what way.

The third objective is to conduct a prescriptive study of the legal system with an eye to recommending legislative policies that will facilitate efficient incentive negotiations.

In connection with the objectives of this project described, there are two arguments in the world's legal and economic association.

The first argument is whether or not corporate governance practiced in different parts of the world will converge into a standard form. Although this project will examine not only a pro forma convergence but also a substantive convergence of legal systems and other elements, to examine substantive convergence the focus needs to be placed on incentive patterns. It is therefore important to productively discuss an optimal structure for incentives given the market environment, the degree of necessity for firm-specific investments, and the stage of development of an individual enterprise, among other factors. The definition of "optimal" also needs to be discussed.

The second argument is whether the legal system will determine the actual situation, and if so, how. Although it is generally observed that discussions tend to follow the premise that different legal systems will function in a like manner under all circumstances, it is important to examine the influence that each individual legal system will have on the incentives for each individual actor, taking exogenous factors into account. It is also necessary to discuss the impact that consistencies and inconsistencies among different areas of law will have on incentives.

For these purposes, the following items will be discussed as a series of specific subjects in the first year of this project. For the legal systems to be presented by experts in each area that are considered to influence the incentives for the actors, consistencies and inconsistencies among different areas of law will be embodied through discussions with experts from other areas.