Decomposing the corporate law reform and behavior of MOJ: an empirical analysis through public comments procedure in Japan

Hatsuru MoritaUniversity of Chicago and Tohoku UniversityTalk at the Japanese Law AssociationJan ??, 2006

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

Public comment procedure

The cabinet decision of Mar 23, 1999When 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

Process of corporate law reforms

Legal Council MOJ Diet

ManagementsEmployeesConsumersLawyersJudgesAcademics

Public CommentProcedure

Managements

Competing theories on the bureaucratic behavior

1. Public comment has no effect

2. Public comment has large effect

3. Observe only the influence of powerful interest groups

4. MOJ employs public comment procedure in order to countervail the pressure of interest groups

5. Only “convincing” comments have effect

Looking for data

Usually, only “the result of the consideration” is publishedYou 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 publishedA nice data source to test theories!2002 reform and 2005 reform

Looking for data (cont’d)

How to construct the datasetsDivide the drafts into single issuesCheck 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

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

Predictions of the theories

No effectNo comment is significantSpecial 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

Predictions (cont’d)

Interest groups’ pressureOnly 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)

Predictions (cont’d)

Persuasiveness mattersNo clear prediction?The # of Yes’s and No’s from managements

are not significantThose who are used to present legal(?)

discussions can have significant effect (= academics?)

The dataset

2002 corporate law reform and 2005 corporate law reformHand-collected dataset from the publication of M

OJClassification of the commenters

Business community (= managements) Financial institutions (Banks, etc) Academics Other (Bar ass’ns, NPOs, etc)

The dataset (cont’d)

Classification of issuesRegulatory / 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 ~”

Variable Mean Std. Dev. Min MaxReform 0.809 0.394 0 1

Yes 16.3 6.54 1 31

No 5.28 4.87 1 25

Yes: Academic 4.76 2.82 0 17

Yes: Bus. Com. 3.8 2.29 0 11

Yes: Fin. Inst. 0.439 0.779 0 4

Yes: Other 7.39 3.08 0 19

No: Academic 2.89 3.05 0 17

No: Bus. Com. 0.554 1.06 0 4

No: Fin. Inst. 0.197 0.512 0 3

No: Other 1.64 2.32 0 11

Regulatory 0.14 0.348 0 1

Expression 0.675 0.47 0 1

Summary Statistics of 2005

Result of 2005

　 I II III IVYes .0229*** .0228*** .0149** .0147**

(.00414) (.00418) (.00462) (.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 156 156 156 156

　 I II III IVYes: Bus. Com. .0538** .0580** .0482** .0540**

　 (.0176) (.0180) (.0170) (.0173)Yes: Fin. Inst. .0260 .0249 .0247 .0230

　 (.0351) (.0351) (.0339) (.0337)Yes: Academic .00587 .00263 .00348 -.00136

　 (.0132) (.0135) (.0127) (.0130)Yes: Other .0140 .0129 .00250 .000162

　 (.0151) (.0151) (.0149) (.0149)No: Bus. Com. -.0121 -.0278 .0171 -.00376

　 (.0298) (.0331) (.0299) (.0324)No: Fin. Inst. .00209 .00575 .00426 .00970

　 (.0555) (.0545) (.0525) (.0523)No: Academic -.0292* -.0286* -.0256* -.0246*

　 (.0124) (.0124) (.0120) (.0120)No: Other -.0542** -.0573*** -.0504** -.0547***　 (.0173) (.0176) (.0168) (.0169)

Regulatory .106 .153　 (.0972) (.0942)

Expression .236*** .251***　 (.0679) (.0681)

Adjusted R^2 0.326 0.327 0.374 0.380N 157 157 157 157

Subset of the data

　 I II III IVRegulatory Yes Yes No No

Yes .0198 .0172 .0224*** .0130*　 (.0129) (.0136) (.00450) (.00503)No -.0545 -.0502 -.0262*** -.0214***　 (.0296) (.0297) (.00568) (.00560)

Expression .115 .267***　 (.178) (.0898)

Adjusted R^2 0.349 0.329 0.308 0.366N 22 22 135 135

　 I II III IVRegulatory Yes Yes No 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 -.00761 -.0160　 (.0281) (.0298) (.0158) (.0150)

Yes: Other -.0410 -.0388 .0243 .00919　 (.0412) (.0426) (.0166) (.0161)

No: Bus. Com. -.0410 -.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 0.400N 22 22 135 135

Summary Statistics of 2002Variable Mean Std. Dev. Min MaxReform 0.642 0.484 0 1

Yes 22.2 9.6 3 38No 11.2 10.5 0 42

Yes: Academic 8.72 4.52 0 18Yes: Bus. Com. 5.72 4.04 0 14Yes: Fin. Inst. 0.925 1.11 0 4

Yes: Other 6.79 3.54 0 15No: Academic 4.94 4.82 0 20No: Bus. Com. 3.09 5.38 0 18No: Fin. Inst. 0.774 1.6 0 6

No: Other 2.34 2.41 0 8Regulatory 0.264 0.445 0 1Expression 0.83 0.379 0 1

Result of 2002　 I II III IV

Yes .0274*** .0217*** .0183* .0159*　 (.00558) (.00534) (.00731) (.00679)No -.0117* -.00215 -.0138** -.00432　 (.00508) (.00541) (.00508) (.00559)

Regulatory -.457*** -.420**

　 (.135) (.136)

Expression .328 .228

　 (.177) (.167)Adjusted R^2 0.417 0.518 0.444 0.526

N 53 53 53 53

　 I II III IVYes: Bus. Com. .0172 .00554 .0172 .00634

　 (.0188) (.0188) (.0187) (.0190)Yes: Fin. Inst. .00126 .00553 .0117 .0109

　 (.0549) (.0527) (.0556) (.0538)Yes: Academic .0315 .0212 .0170 .0140

　 (.0165) (.0165) (.0213) (.0207)Yes: Other .00653 .0140 .00511 .0128

　 (.0228) (.0222) (.0228) (.0224)No: Bus. Com. .00526 .0259 -.0000103 .0216

　 (.0217) (.0228) (.0222) (.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) (.217)

Adjusted R^2 0.483 0.525 0.485 0.518N 53 53 53 53

Subset of the data

　 I II III IVRegulatory Yes Yes No No

Yes .00217 -.00660 .0316*** .0259***　 (.00995) (.0141) (.00562) (.00672)No .00735 .00395 -.0108 -.0122　 (.00827) (.00919) (.00671) (.00667)

Expression .283 .262　 (.319) (.176)

Adjusted R^2 -0.0966 -0.118 0.488 0.505F-statistic 0.43 0.54 19.08 13.89

N 14 14 39 39

　 I II III IVRegulatory Yes Yes No 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 -.00401 -.0000915 .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 -.00941 -.00765　 (.0893) (.112) (.0327) (.0338)

Expression -.119 .0628　 (.271) (.226)

Adjusted R^2 0.827 0.793 0.559 0.545F-statistic 8.77 6.56 7.03 6.06

N 14 14 39 39

Conclusion

General points 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 w

here the stake is big Academics have significant influence when the stake i

s small Interest group explanation and convincing explanation

hold, while independence explanation does not seem to hold