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