Comparing Japan and the West

Abstract

This chapter compares publicly listed firms in Japan with matched firms in the United States, the United Kingdom, and Germany to explain persistent cross-national differences in corporate short-termism. Focusing on shareholder payout and real investment, it shows that Japanese firms distribute substantially less to shareholders than Western counterparts and, in key respects, even less than German firms, despite operating under formal corporate governance rules that are relatively shareholder-friendly. The chapter argues that these outcomes cannot be explained by stock market exposure, managerial self-interest, or formal institutions alone. Instead, it highlights the central role of ideational constraints rooted in a prevailing view of the public firm as an enterprise community oriented towards employees and long-term continuity, with dispersed shareholders treated as peripheral claimants. While both Japan and Germany exhibit stakeholder-oriented outcomes, the chapter shows that managerial constraints differ markedly between them: German managers are constrained primarily through institutionalised stakeholder representation and coordinated governance arrangements, whereas Japanese managers are constrained more strongly by social legitimacy, normative expectations, and reputational considerations. These ideational constraints are traced to Japan’s distinctive historical development, including state-led industrialisation, the influence of Confucian ethical traditions, and a sustained scepticism towards Western economic theories and governance models. The chapter further shows how these ideas are reinforced by strong norms against hostile takeovers, supported by courts, the state, and business organisations. By contrasting Japan and Germany, the chapter demonstrates why ideas are indispensable for explaining variation within stakeholder-oriented capitalism and the limits of convergence towards the Anglo-American model.