1. Decomposing the corporate law reform and behavior of MOJ: an empirical analysis through public comments procedure in Japan
Hatsuru Morita
University of Chicago and Tohoku University
Talk at the Japanese Law Association
Jan ??, 2006

2. Motivation Repeated big reforms of the corporate law in this decade
Only part of actors are subject to analysis
Managements and labor unions
The role of the bureaucrats of the ministry of justice has never been explored
Public comment procedure
Originally introduced as a governmental guideline in 1999 and incorporated into the APA in 2005
However, almost no analyses have been made

3. Public comment procedure
The cabinet decision of Mar 23, 1999
When a branch of the government makes a regulation, it is required to publicize the draft of the regulation and to get comments on the draft
Although the branch is not bounded by the comments, it must publicize “the result of its consideration”
In 2005, this was incorporated in the APA

4. Process of corporate law reforms
Legal Council
MOJ
Diet
Managements
Employees
Consumers
Lawyers
Judges
Academics
Public Comment
Procedure
Managements

5. Competing theories on the bureaucratic behavior
Public comment has no effect
Public comment has large effect
Observe only the influence of powerful interest groups
MOJ employs public comment procedure in order to countervail the pressure of interest groups
Only “convincing” comments have effect

6. Looking for data
Usually, only “the result of the consideration” is published
You can only know what sort of comments are submitted and whether the original draft has been changed or not
As to two corporate law reforms, every single comment is published
A nice data source to test theories!
2002 reform and 2005 reform

7. Looking for data (cont’d)
How to construct the datasets
Divide the drafts into single issues
Check the outcome
Whether the final bill is the same as the original draft or not
Count the numbers of “Yes”s and “No”s
Also note what type of group submit the comment

8. Estimation strategy Regression by OLS Probability of “success” =
# of Yes’s + # of No’s + controls + ε
* # of Yes’s and No’s are decomposed by type of group

9. Predictions of the theories
No effect
No comment is significant
Special explanatory variable: “expression”
Whether the issue has the form of “shall be ~” or “how about ~”
Strong effect
# of Yes’s and No’s have significant effect on the outcome

10. Predictions (cont’d) Interest groups’ pressure Independence model
Only the # of Yes’s and No’s from managements have significant effect
Independence model
The # of Yes’s and No’s from managements are not significant
Non-interest groups (academic?) have significant effect (especially where the pressure of interest group is expected to be high)

11. Predictions (cont’d) Persuasiveness matters No clear prediction?
The # of Yes’s and No’s from managements are not significant
Those who are used to present legal(?) discussions can have significant effect (= academics?)

12. The dataset 2002 corporate law reform and 2005 corporate law reform
Hand-collected dataset from the publication of MOJ
Classification of the commenters
Business community (= managements)
Financial institutions (Banks, etc)
Academics
Other (Bar ass’ns, NPOs, etc)

13. The dataset (cont’d) Classification of issues Regulatory / enabling
Under the recent trend of “deregulation” in Japan, the more regulatory a proposals is, the more “high-stake” it is
Expression by the drafter (MOJ)
“shall be ~”
“how about ~”

14. Summary Statistics of 2005 Variable Mean Std. Dev. Min Max Reform
0.809
0.394 1
Yes
16.3
6.54 31 No
5.28
4.87 25
Yes: Academic
4.76
2.82 17
Yes: Bus. Com.
3.8
2.29 11
Yes: Fin. Inst.
0.439
0.779 4
Yes: Other
7.39
3.08 19
No: Academic
2.89
3.05
No: Bus. Com.
0.554
1.06
No: Fin. Inst.
0.197
0.512 3
No: Other
1.64
2.32
Regulatory
0.14
0.348
Expression
0.675
0.47

15. Result of 2005 I II III IV Yes .0229*** .0228*** .0149** .0147**
(.00414)
(.00418)
(.00462) No
-.0274***
-.0275***
-.0236***
-.0230***
(.00555)
(.00559)
(.00547)
(.00554)
Regulatory
-.0187
.563
(.0756)
(.0759)
Expression
.226***
.240***
(.650)
(.678)
Adjusted R^2
0.320
0.316
0.366
0.364 N
156

16. I II
III IV
Yes: Bus. Com.
.0538**
.0580**
.0482**
.0540**
(.0176)
(.0180)
(.0170)
(.0173)
Yes: Fin. Inst.
.0260
.0249
.0247
.0230
(.0351)
(.0339)
(.0337)
Yes: Academic
.00587
.00263
.00348
(.0132)
(.0135)
(.0127)
(.0130)
Yes: Other
.0140
.0129
.00250
(.0151)
(.0149)
No: Bus. Com.
-.0121
-.0278
.0171
(.0298)
(.0331)
(.0299)
(.0324)
No: Fin. Inst.
.00209
.00575
.00426
.00970
(.0555)
(.0545)
(.0525)
(.0523)
No: Academic
-.0292*
-.0286*
-.0256*
-.0246*
(.0124)
(.0120)
No: Other
-.0542**
-.0573***
-.0504**
-.0547***
(.0168)
(.0169)
Regulatory
.106
.153
(.0972)
(.0942)
Expression
.236***
.251***
(.0679)
(.0681)
Adjusted R^2
0.326
0.327
0.374
0.380 N
157

17. Subset of the data I II III IV Regulatory Yes No .0198 .0172 .0224***
.0130*
(.0129)
(.0136)
(.00450)
(.00503)
-.0545
-.0502
-.0262***
-.0214***
(.0296)
(.0297)
(.00568)
(.00560)
Expression
.115
.267***
(.178)
(.0898)
Adjusted R^2
0.349
0.329
0.308
0.366 N 22
135

18. I II
III IV
Regulatory
Yes No
Yes: Bus. Com.
.0885
.0995
.0615***
.0589***
(.0908)
(.0945)
(.0184)
(.0173)
Yes: Fin. Inst.
.271
.234
.0210
.0176
(.161)
(.175)
(.0359)
(.0338)
Yes: Academic
.0413
.0361
-.0160
(.0281)
(.0298)
(.0158)
(.0150)
Yes: Other
-.0410
-.0388
.0243
.00919
(.0412)
(.0426)
(.0166)
(.0161)
No: Bus. Com.
-.0459
.0209
.0515
(.0735)
(.0756)
(.0423)
(.0406)
No: Fin. Inst.
.0352
-.0125
-0.137
-.0209
(.239)
(.256)
(.0584)
(.0550)
No: Academic
.172
.193
-.0375**
-.0326**
(.0865)
(.0944)
(.0128)
(.0122)
No: Other
-.130*
-.150*
-.0432*
-.0416*
(.0588)
(.0672)
(.0187)
(.0177)
Expression
-.134
.301***
(.207)
(.0732)
Adjusted R^2
0.532
0.510
0.324
0.400 N 22
135

19. Summary Statistics of 2002 Variable Mean Std. Dev. Min Max Reform
0.642
0.484 1
Yes
22.2
9.6 3 38 No
11.2
10.5 42
Yes: Academic
8.72
4.52 18
Yes: Bus. Com.
5.72
4.04 14
Yes: Fin. Inst.
0.925
1.11 4
Yes: Other
6.79
3.54 15
No: Academic
4.94
4.82 20
No: Bus. Com.
3.09
5.38
No: Fin. Inst.
0.774
1.6 6
No: Other
2.34
2.41 8
Regulatory
0.264
0.445
Expression
0.83
0.379

20. Result of 2002 I II III IV Yes .0274*** .0217*** .0183* .0159*
(.00558)
(.00534)
(.00731)
(.00679) No
-.0117*
-.0138**
(.00508)
(.00541)
(.00559)
Regulatory
-.457***
-.420**
(.135)
(.136)
Expression
.328
.228
(.177)
(.167)
Adjusted R^2
0.417
0.518
0.444
0.526 N 53

21. I II
III IV
Yes: Bus. Com.
.0172
.00554
.00634
(.0188)
(.0187)
(.0190)
Yes: Fin. Inst.
.00126
.00553
.0117
.0109
(.0549)
(.0527)
(.0556)
(.0538)
Yes: Academic
.0315
.0212
.0170
.0140
(.0165)
(.0213)
(.0207)
Yes: Other
.00653
.00511
.0128
(.0228)
(.0222)
(.0224)
No: Bus. Com.
.00526
.0259
.0216
(.0217)
(.0242)
No: Fin. Inst.
-.122
-.105
-.0861
-.0865
(.0691)
(.0667)
(.0765)
(.0741)
No: Academic
.0285*
.0211
.0217
.0180
(.0140)
(.0138)
(.0153)
(.0149)
No: Other
-.0594
-.0575
-.0611
-.0586
(.0344)
(.0330)
(.0343)
(.0332)
Regulatory
-.433*
-.403
(.197)
(.205)
Expression
.234
.127
(.217)
Adjusted R^2
0.483
0.525
0.485
0.518 N 53

22. Subset of the data I II III IV Regulatory Yes No .00217 -.00660
.0316***
.0259***
(.00995)
(.0141)
(.00562)
(.00672)
.00735
.00395
-.0108
-.0122
(.00827)
(.00919)
(.00671)
(.00667)
Expression
.283
.262
(.319)
(.176)
Adjusted R^2
-0.118
0.488
0.505
F-statistic
0.43
0.54
19.08
13.89 N 14 39

23. I II
III IV
Regulatory
Yes No
Yes: Bus. Com.
.0375
.0345
.00127
.00126
(.0330)
(.0366)
(.0162)
(.0164)
Yes: Fin. Inst.
.117
.0647
-.0174
-.0152
(.160)
(.211)
(.0446)
(.0460)
Yes: Academic
.0461*
.0437*
(.0229)
(.0265)
(.0175)
(.0196)
Yes: Other
-.0326
-.0233
.0348
.0338
(.0341)
(.0428)
(.0201)
(.0208)
No: Bus. Com.
.0817**
.0852**
-.0694
-.0754
(.0131)
(.0165)
(.0519)
(.0570)
No: Fin. Inst.
-.246**
-.260*
-.0884
-.0567
(.0580)
(.0715)
(.240)
(.269)
No: Academic
.0750
.0706
.00770
.00681
(.0469)
(.0522)
(.0119)
(.0126)
No: Other
-.0814
-.0568
(.0893)
(.112)
(.0327)
(.0338)
Expression
-.119
.0628
(.271)
(.226)
Adjusted R^2
0.827
0.793
0.559
0.545
F-statistic
8.77
6.56
7.03
6.06 N 14 39

24. Conclusion General points Evaluation of the theories
Different groups have different influences
The nature of issues matters
Evaluation of the theories
MOJ has strong control on the outcome
The managements has strong influence particularly where the stake is big
Academics have significant influence when the stake is small
Interest group explanation and convincing explanation hold, while independence explanation does not seem to hold