Shareholding in the Keiretsu, Japan's Financial Groups

Flath, David

doi:10.2307/2109430

Cited by 117 publications

(71 citation statements)

References 10 publications

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“…But it should be noted that the positive relationship to ROA and Q is only observed for 1964-69, and not significant in the period from 1969-74. This positive correlation between bank ownership of shares and performance is consistent with Prowse (1990) and Flath (1993), which stress the role of the main bank as delegated monitor, and provide supportive results for the 1980s. 2 See Miyajima et al (2003) for details.…”

Section: Approaching the Stable Shareholder Problemsupporting

confidence: 76%

The Unwinding of Cross-Shareholding in Japan: Causes, Effects, and Implications

Miyajima

2005

SSRN Journal

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Considering that the ownership structure of Japanese corporations has changed dramatically in the 1990s, this paper address a series of questions related to these changes:Why is cross-shareholding, which has been in place for almost three decades, now show that profitable firms with easy access to capital markets and high foreign ownership prior to the banking crisis have tended to unwind cross-shareholdings, while low-profit firms with difficulty accessing capital markets and low foreign ownership in the early 1990s have tended to keep their cross-shareholding relationships with banks. We also show that high intuitional shareholding and, somewhat surprisingly, block shareholding by corporations have positive effects on firm performance, while bank ownership has had a consistently negative effect on firm performance since the mid-1980s. We use these findings to address some policy implications and to provide some perspectives on the future of the ownership structure of Japanese firms. JEL classification; G21; G32; K22; L25

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Section: Approaching the Stable Shareholder Problemsupporting

confidence: 76%

The Unwinding of Cross-Shareholding in Japan: Causes, Effects, and Implications

Miyajima

2005

SSRN Journal

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“…In accordance with this hypothesis, Flath [7] states that the largest creditors in the keiretsu member companies, highly indebted and with strong growth prospects have majority stakes.…”

Section: Literature Reviewmentioning

confidence: 86%

“…In other words, this acquisition of shares of firms by banks or the participation of the banks in the capital of companies is the result of increases in the costs of Agency Gonzalez [8]. According to this principle, a fall of profitability or a rise of the risk raises the agency costs between the bank and the firms and justifies the involvement of the banks in the capital [7].…”

Section: Literature Reviewmentioning

confidence: 99%

Bankers on Board, Banks as Shareholders and Firm ’s Performance: Case of the Tunisian Listed Companies

Affes¹,

Nh²

2016

J Bus Fin Aff

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according to the assumption of the agency costs of debt-equity, the banks' presence in the Board of Directors negatively effects on the company's value. Bubna and Radhakrishnan [5] showed that there are information asymmetries between the shareholders and the creditors. According to this hypothesis, the presence of banks in the board of directors reduces the information asymmetries between the firms and the creditors and consequently improves the companies' value.The existence of conflicts of interest between the shareholders and the creditors is reduced by a set of internal and external mechanisms. The board of directors and ownership structure are two alternative mechanisms of governance and control. Besides these two internal governance mechanisms, the presence of banks in the board of directors and ownership structure are also two governance mechanisms since this presence is associated with a reduction of the agency costs due to the conflicts of interest between the shareholders and the creditors.The practice of the banks' participation in the firms' capital depends on the country considered. Actually, in France, for example, banks are under no obligation to participate in the firms' capital. However, the American legislation and more particularly the Glass-Steagall Act (1933) prevents banks from participating in the firms' capital. Recently, the American legislation, through the Gramm-Leach-Bliley Act, has given commercial banks the opportunities to participate in the capital of firms. Besides, Germany, which encourages the banks' participation in the companies' capital, introduced some restrictions which were discussed in the Bundestag (1977). A very recent study has revealed that the Monopoly Commission limited the banks' participation to the amount of 5% of the companies' capital. The banking regulations in Keywords: Bankers on board; Banks as shareholders; Firm's Performance; Anglo-Saxon Introduction Nowadays, the corporate finance researches attach great importance to the role of banks in the management of enterprises [1][2][3]. In fact, companies resort to banking indebtedness. The nature of the relationship between banks and enterprises depends on the country and the existing regulations. Unlike Germany and Japan, where financing takes place via banks, the Anglo-Saxon financial markets play an important role in the funding and control of companies. German companies maintain long term relationships with a Bank called "Hausbank". A fundamental characteristic of these banks is their participation in the companies' capital and funding them Moreover, the Japanese Keiretsu system enables banks to become shareholders and members in the Board of Directors. The bank ownership is a very widespread phenomenon in the Japanese banking systems and the continental Europe. The theory recognizes the ability of the bank holdings on the liabilities of big businesses to improve the control system of the leaders. Moreover, the presence of banks in the capital of companies improves the quality of information they have, wh...

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“…Within such a group, it was the usual practice that banks accepted major investment projects planned by firms belonging to the "Keiretsu" and that they provided preferential loans when thought necessary. The emergence of far-reaching moral-hazard problems concerning crediting the enterprise sector was a consequence of these specific rules of the economic game (Flath, 1993). Therefore after the bubble burst, financial liberalization and international integration were considered as crucial for the future growth perspectives of the country.…”

Section: Motivationmentioning

confidence: 99%

Some Remarks on Japanese Finance, Growth and International Integration

Schrooten¹

2001

VJH

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Despite the fact that the last century was characterized by an impressive increase of cross-border capital flows, Japan remained a relatively closed economy up to the late 90s. Only when the "bubble" burst was the impetus given for more rapid opening up of the economy and the closely related liberalization of the financial sector. In general economic theory sees international financial market integration as an important instrument for increasing economic productivity. Japan, however, remains mired in an ongoing deep financial crisis even following the implementation of this measure. To understand this phenomenon better, this paper connects ideas from endogenous growth theory with the introduction of new rules of the economic game on the financial market. It can be demonstrated empirically that in Japan, the "old" internal institutions on the financial market have continued to exist even after the change in external institutions. Against the backdrop of these tensions, it is unlikely that the formally liberalized financial sector will have any significant positive impacts on Japan's economic development in the near future. Obwohl das letzte Jahrhundert im Allgemeinen durch eine starke Ausweitung der internationalen Kapitalverflechtung gekennzeichnet war, blieb Japan bis in die 90er Jahre hinein eine relativ geschlossene Volkswirtschaft. Erst mit dem Platzen der so genannten "Bubble" wurde die Öffnung der Volkswirtschaft und damit eng verbunden die Liberalisierung des Finanzsektors vorangetrieben. Üblicherweise sieht die ökonomische Theorie in der internationalen Finanzmarktintegration ein wichtiges Instrument zur Steigerung der gesamtwirtschaftlichen Produktivität. Japan allerdings befindet sich auch nach diesem Schritt in einer anhaltend tiefgreifenden gesamtwirtschaftlichen Krise. Um dieses Phänomen besser zu verstehen, stellt das vorliegende Papier einen Zusammenhang zwischen Überlegungen von endogener Wachstumstheorie und der Einführung neuer Spielregeln auf dem Finanzmarkt her. Empirisch lässt sich zeigen, dass in Japan die "alten" internen Institutionen auf dem Finanzmarkt auch nach der Veränderung der externen Institutionen Bestand haben. Vor dem Hintergrund dieser Spannungen sind auch in der nahen Zukunft von dem formal liberalisierten Finanzsektor keine nennenswerten positiven Impulse auf die gesamtwirtschaftliche Entwicklung zu erwarten.

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Shareholding in the Keiretsu, Japan's Financial Groups

Cited by 117 publications

References 10 publications

The Unwinding of Cross-Shareholding in Japan: Causes, Effects, and Implications

The Unwinding of Cross-Shareholding in Japan: Causes, Effects, and Implications

Bankers on Board, Banks as Shareholders and Firm ’s Performance: Case of the Tunisian Listed Companies

Some Remarks on Japanese Finance, Growth and International Integration

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