Why shareholders sue: The evidence from Japan

This article explores the dynamics of shareholder litigation in a heretofor e overlooked context: Japan. Following a 1993 reduction of filing fees, the number of shareholder derivative suits filed in Japan has increased dramat ically, creating a database from which to study litigation incentives. This article shows that most plaintiffs in Japan lose, few suits settle, settle ment amounts are low, and shareholders do not receive direct stock price be nefits from suits. Most derivative suits in Japan, as in the United States, can be explained not by direct benefits to plaintiffs but by attorney ince ntives. Still, derivative litigation has more than one cause. The residuum of suits not wholly explained by attorney incentives is best explained by a combination of (1) nonmonetary factors, (2) corporate troublemakers, (3) i nsurance, and (4) "piggyback" enforcement. These findings suggest that the difficult and messy issues of derivative suits are not unique to the United States.