Judgments on Firm Valuation in Japan

Mineo Tsuji, Kyoko Fukunaga

Abstract

The objective of this paper is to show how judgments are made in a more market-oriented environment of Japan. The article 116 of the Companies Act says that in the case listed in the certain items, dissenting stockholders may demand that the Stock Company purchase, at a fair price, the stocks prescribed in such items held by such stockholders. In order to determine the price, Japanese courts have adopted the market approach except a few cases. In 2012, considering the synergy effect, a district court took to this problem the discounted free cash flow model, one method of the income approach. The adoption of the income approach, the residual income model in particular, would make it possible to judge fairly the value inherent in the firm. As, in Japan as well as in the United States, accounting studies have obtained more effective evidences for the income approach, particularly the residual income model, so the court should more often apply such a method in the decision about a fair price.