Investor Right in Historical Perspective: Globalization and the Future of the Japanese Firm and Financial System

The evolution of investor right in Japan is examined in a historical perspective since the prewar period and in relation to the evolution in firm-specific skill formation. First, we will show that the investment in firm-specific skills spread from the top to the bottom in a firm system. Second, we will show that the delegation of control right of physical assets to employees was caused in order to accommodate the rapid technological changes. The weak investor right in Japan evolved through a rational choice of asset holders (shareholders and landlords), who delegated part of control right over their assets to actual producers (managers, workers, and tenant farmers) in order to maximize the benefits of firm-specific skill formation by them. A cautious approach is needed in adjusting the investor right to global standards: a stronger investor right would enhance allocation efficiency of financial resources, but it could be harmful to organizational efficiency based on investment in firm-specific skills.