Japanese corporate governance practices in the post-bubble era: Implications of institutional and legal reforms in the 1990s and early 2000s

The burst of the financial bubble in 1990 triggered a long recession in Japan. Ensuing massive bad loan problems plagued Japanese banks, many of which faced bankruptcy. Japanese firms also suffered from the massive excess capacity that their banks’ bad loans financed. Japanese firms no longer had access to the traditional bank financing from their failing banks and were unable to renew their dated production equipment. They lost global competitiveness in the globalising era. Facing public criticisms blaming Japan’s bank-based corporate governance practices for the problems Japan was facing, the Japanese government undertook a major overhaul of almost all aspects of Japan’s legal settings for corporate governance. In response to the legal reforms many Japanese firms began changing their corporate governance and other business practices.