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Puchniak, Dan W. --- "Perverse Rescue in the Lost Decade: Main Banks in the Post-Bubble Era" [2008] ELECD 384; in Nottage, Luke; Wolff, Leon; Anderson, Kent (eds), "Corporate Governance in the 21st Century" (Edward Elgar Publishing, 2008)

Book Title: Corporate Governance in the 21st Century

Editor(s): Nottage, Luke; Wolff, Leon; Anderson, Kent

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847209238

Section: Chapter 4

Section Title: Perverse Rescue in the Lost Decade: Main Banks in the Post-Bubble Era

Author(s): Puchniak, Dan W.

Number of pages: 27

Extract:

4. Perverse rescue in the lost decade:
main banks in the post-bubble era*
Dan W. Puchniak
Academic theories are attractive ­ especially to academics. When the theory is
simple, contrarian, and championed by eminent Tokyo University and Harvard
professors, it is almost irresistible. However, when it fails to make sense of real-
ity, it quickly loses its appeal. So, despite the temptation to embrace Yoshiro
Miwa and Mark Ramseyer's (M&R) new theory of Japanese corporate gover-
nance, which finds decades of research to have constructed `a myth', I resist.
The story told by M&R is enchanting in its simplicity and universality. In
their world:

Whether in the United States or in Japan, firms raise funds in competitive capital
markets, and buy and sell in competitive labor, service, and product markets.
Whether here or there, in order to survive, they will need good governance schemes.
. . . The scheme they pick will vary from firm to firm. The fact that they will pick
the optimal scheme or die will not (M&R, 2002, p. 421, emphasis added).

It all sounds logical, because it is ­ unless unique and perverse institutional
incentives, and not free-market forces, drive corporate governance.1 In which
case, the incentives for `bad governance' and `suboptimal schemes' may be
greater than those for `good governance' and `optimal schemes'. Perverse it is,
but mythical it is not.


* This is an updated and condensed version of an article that was first published
in the Pacific Rim Law & Policy Journal: ...