The Strategic Logic of Japanese Keiretsu, Main Banks and Cross-Shareholdings, Revisited

This paper introduces recent fundamental changes in Japan's political economy, and analyzes how these have affected the country's industrial architecture in terms of business group organization. Whereas previously, long-term, stable relations with other firms, banks and shareholders afforded great advantage to many companies, the new dynamic environment has led more and more banks and companies to turn away from stable "insurance" arrangements. The paper shows that a revision of corporate law towards more managerial flexibility paired with broader powers by shareholders matches this shift towards greater transparency, accountability, and competitive strategic positioning. Therefore, processes of corporate governance are also greatly altered. Our perceived wisdom of Japanese business organization needs to be updated

Competition for Corporate Control: Institutional Investors, Investment Funds, and Hostile Takeovers in Japan

The recession and banking crisis of the 1990s have triggered a complete reorientation in corporate strategy by large Japanese firms, away from the previous goal of diversification financed by bank loans, and towards market-financed concentration on select core businesses. The transition has necessitated corporate reorganization by almost all large firms, causing a wave of spin-off, mergers, and acquisitions. Extensive legal reforms have enabled this reorganization and introduced more stringent rules on accounting and disclosure. The confluence of these two events - access and transparency - has paved the way for a market for corporate control, fueled by institutional investors and investment funds, including foreigners, as major players. While the M&A boom of the early 21st century may partially be attributable to a window of economic opportunity, the systemic changes in Japan's financial markets are irreversible and therefore constitute a strategic inflection point. Contested corporate control has become an indelible part of Japanese finance and corporate governance

Self-Regulation and the Sanctuary Strategy: Competitive Advantage through Domestic Cooperation by Japanese Firms

In a "sanctuary strategy", a firm uses restraints to competition in its home market to create a profit cushion that allows it to compete forcefully in foreign markets. This paper argues that self-regulation by industry associations is an important domestic prerequisite of a successful sanctuary strategy. Therefore, by studying the situation of self-regulation and cooperation within Japanese industry associations, we can identify predictors of a sanctuary strategy and study one example of the competitive effects of cooperation among companies. The paper builds on a data set containing 1153 Japanese industry associations to, first, test standard notions of cooperation and collusion as suggested by the economics of industrial organization, adapted to the context of industry associations. Next, the paper develops new hypotheses to analyze whether internal features of industry association organization predict the likelihood of self-regulation. The paper suggests specific variables that can be used for analysis, and concludes that as self-regulation increases in Japan, so may the sanctuary strategies employed by Japanese firms

The Market for Corporate Subsidiaries in Japan: An Empirical Study of Trades Among Listed Firms

We investigate trades of wholly- or partially-owned subsidiaries between firms listed on the Tokyo Stock Exchange (TSE) for the years 1996 to 2010, to explore the economic impact in terms of strategic refocusing, stock market valuation and performance effects. By pairing both sides to each deal, we show differences in firm characteristics, returns, and subsequent performance of buying and selling firms. Unlike mergers between whole firms, most subsidiary deals straddled different industries. Most sellers were larger, more diversified and less profitable than buyers. Our event study reveals that abnormal returns were positive for buyers yet insignificantly different from zero for sellers. However, subsidiary sales in the core business earned negative returns, the more so the larger the deal. An analysis of ex-post operating results shows that the performance of sellers often declined after the trade, in particular for firms that divested a core-related subsidiary. We conclude that subsidiary trades in Japan in this period contributed importantly to strategic repositioning and a more efficient use of corporate assets

Changes in Corporate Restructuring Processes in Japan, 1981-2007

We analyze a large database collected from newspaper articles that report on major episodes of corporate restructuring in Japan between 1981 and 2007. By linking this database with financial data on public firms, we identify changes in the likelihood that a distressed undergoes restructuring, as well as in some measures adopted during restructuring. We find that the way distressed Japanese firms are restructured has changed during this period. The likelihood that a large distressed firm with high levels of debt undergoes restructuring has declined. Those firms that undergo restructuring continue to adopt more aggressive measures in terms of layoffs and cutbacks than other distressed firms, suggesting that "restructuring", when it happens, involves real adjustments. Banks continue to be important for firms with a clearly identified main bank, and the main bank is more likely to push for more drastic reductions in debt and bank loans than other entities leading a restructuring event

The 1995 Financial Crisis in Japan

is gratefully acknowledged.- 2

The introduction of commercial paper (CP): a case study in the liberalization of the Japanese financial market

SIGLEAvailable from Bibliothek des Instituts fuer Weltwirtschaft, ZBW, Duesternbrook Weg 120, D-24105 Kiel / FIZ - Fachinformationszzentrum Karlsruhe / TIB - Technische InformationsbibliothekDEGerman