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Visibility Versus Complexity In Business Groups: Evidence From Japanese Keiretsu
Kathryn L. Dewenter University of Washington - Michael G. Foster School of Business Walter Novaes Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics Richard H. Pettway University of Missouri at Columbia - Department of Finance The Journal of Business Abstract: This paper examines the potential for external conflicts in large, diversified business groups. On one hand, these groups are highly visible, facilitating the detection of opportunistic actions. Accordingly, reputation concerns should effectively constrain group behavior. On the other hand, these groups are highly complex, making it difficult for outsiders to unveil group strategies from among a myriad of transactions. This complexity should limit the power of reputation concerns to constrain actions. We use data on IPO initial returns to evaluate the trade-off between visibility and complexity. The evidence suggests that complexity dominates visibility, providing scope for opportunistic behavior against outside investors.
JEL Classifications: G34 Accepted Paper SeriesDate posted: April 25, 2000 ; Last revised: July 23, 2001Suggested CitationContact Information
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