Cross-shareholding in the Japanese Keiretsu

Abstract:     
Although sometimes said to reflect distinctively Japanese modes of economic organization or the general importance of path-dependence and culture, the cross-shareholding patterns within the Japanese keiretsu often display a straightforward economic logic. When keiretsu banks trade on debtor stock, for example, they occasionally seem to be capturing gains from inside information. When manufacturers in the automobile industry buy stock in their suppliers, they apparently do so to protect relationship-specific investments. And when the pre-war predecessors to the keiretsu invested in component firms, they often invested in ways that resembled the ways silicon valley venture capitalists invest today. Economic form may differ between the U.S. and Japan, but the cross-shareholdings themselves reflect a simple economic rationale.

JEL Classification: L22, L62, G21

working papers series