Corporate Finance and Human Resource Management

Corporate governance can be defined to be an institution that constrains relations between corporate managers and various stakeholders, including shareholders, creditors, workers, suppliers, and customers. Under this broad definition, corporate governance is a system of various sub-systems that are complementary to one another. This paper focuses on two subsystems of the Japanese corporate governance: one on corporate finance and another on human resource management. After briefly documenting the characteristics of the Japanese corporate governance in these two sub-systems, the paper discusses how each sub-system has been going through substantial changes in recent years. Examining the data for 58 listed companies, we find preliminary evidence on the complementarity between the two sub-systems. The firms that have non-traditional ownership structure (especially high foreign ownership) seem to have more nontraditional human resource management practices. * A preliminary version of this paper was presented at "Corporate Governance from an International Perspective: Diversity or Convergence” held on Jan. 8 and 9, 2002. We thank Masahiko Aoki, Gregory Jackson and Mari Sako for useful comments. We thank Tatsuyoshi Okimoto and Kazuyuki Sakamoto for research assistance.