Project Overview

Corporate activity involves adding value, with human capital providers (corporate managers and employees) using the capital offered by monetary capital providers (shareholders and creditors) and distributing the added value among the providers. These four parties are the providers of resources essential to corporate activity and the profits of corporate activity are distributed among them. Since corporate activity cannot succeed if any of these resource providers baulks at providing its resource, each of the parties needs to enter into incentive negotiations with the other resource providers to maximize its own interests.

While the four parties share a common interest in seeking success in corporate activities, they are in a typical relationship involving a conflict of interest. When providing resources, each party will be concerned that other partiers will waste the resource through opportunistic behavior or that the profits from corporate activity will be misused even if they are produced. Given that the incentives of the parties to provide their resources will be weakened if these concerns are left unresolved, the parties need to attenuate not only their own concerns but also those of other parties and actively provide each other with incentives.

When analyzing corporate activity as an incentive game among the four players, negotiations on the distribution of the profits are discussed on the premise that the government's share (tax) is a given. But what if the government is added to a company's incentive game as the fifth player?

Like the other four players, the government is also a provider of resources essential to corporate activity (the different kinds of infrastructure necessary for corporate activity) and has an interest in maximizing the payoff (tax revenue). Consequently, the government will engage in incentive negotiations with the other four players to maximize its own interests, while the four players will conduct incentive negotiations with the government to maximize their interests.

A legal system is an important external factor influencing incentive negotiations among providers of resources essential to corporate activity. In this project, legal systems with the potential to influence incentive negotiations will collectively be called enterprise law. Specifically, corporation law, securities regulation, bankruptcy law, labor law, and tax law, among other laws, will be examined as immediate subjects.

We will ask experts in each area (see list of research collaborators) to list legal systems with the potential to influence incentives among providers of resources essential to corporate activity and to brainstorm on a series of specific subjects. We will then highlight the correlations among different areas of law through discussions based on comments from experts in other areas.

In the first year, we will draw an overall picture of enterprise law, primarily by developing discussions such as the above. Beginning the second year, we will hold discussions that could lead to prescriptive proposals, including the possibility of questionnaires and empirical studies.