Product Defects and the Value of the Firm in Japan: The Impact of the Product Liability Law

Abstract

This paper examines the stock market response of firms in the automobile, food, and pharmaceutical industries to various events during the August 1993–July 1994 period that led to the enactment of the product liability law in Japan. This paper also explores the economic determinants of the magnitude of the impact of legislative events on the value of the firm. The legislative events considered include the initial proposal of the bill, committee approval, approval in each house, and so on. It is found that the most significant market response occurred around the time when the revision requests from the relevant ministries were adopted and that events generally led to losses in the value of the firm. It is also found that firm size is a significant determinant of market response.

Europeanisation of Product Liability in the Asia-Pacific Region: A Preliminary Empirical Benchmark

“…Internationally, product liability reform has typically been preceded by statements from governments and consumer groups as to the need for reform versus concerns expressed by industry groups and manufacturers as to a possible increase in claims, replicating the US experience (e.g., Goldring 1992;Takaoka 2006) and other economic effects. The EC Directive provided an attractive compromise for a number of countries in the region, since these tensions had already been played out in Europe over more than a decade prior to its promulgation in 1985.…”

The 2015 Chinese Food Safety Law and market quality

“…Article 148 of the new Food Safety Law states that “Where a consumer is harmed by food that does not meet the food safety standards, he may claim compensation for losses from the operator or claim compensation for the loss from the producer”. As Takaoka () mentions, lowering litigation costs for consumers will lead to a decrease in a firm's profit and stock price.…”

“…The new law is stricter in terms of guaranteeing the quality of products: for example, it prohibits the use of high concentration pesticides, and requires health food products to have labels indicating that they have not been treated . In general, a stricter law has two opposing effects on stock prices, as Takaoka () points out. On the one hand, only high‐quality products survive under strict laws, which means that the stock prices of companies producing high‐quality products will rise.…”