Equity Markets and Institutions: The Case of Japan

48 Pages Posted: 23 Mar 2009

See all articles by Julian R. Franks

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Hideaki Miyajima

Waseda University - Graduate School of Commerce; Research Institute of Economy, Trade and Industry (RIETI)

Date Written: March 18, 2009

Abstract

Corporate ownership and financing in Japan in the 20th century are striking. In the first half of the 20th century equity markets were active in raising more than 50% of the external financing of Japanese companies. Ownership was dispersed both by the standards of other developed economies at the time and even by those of the UK and US today. In the second half of the 20th century, bank finance dominated external finance and interlocking shareholdings by banks and companies became widespread. The change from equity to bank finance and from an outsider system of public equity markets to an insider system of private equity in the middle of the 20th century coincided precisely with a marked increase in investor protection. Informal institutional arrangements rather than formal investor protection explain the existence of equity in the first half of the century - business co-ordinators in the early 20th century and zaibatsu later. Insider ownership in the form of bank ownership and cross-shareholdings emerged in the second half of the century as a response to the equity financing needs of fast growing firms and the financial restructuring of failing firms.

Keywords: Japan, corporate ownership, equity, investor protection, institutions

JEL Classification: G32, K22

Suggested Citation

Franks, Julian R. and Mayer, Colin and Miyajima, Hideaki, Equity Markets and Institutions: The Case of Japan (March 18, 2009). AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1362613 or http://dx.doi.org/10.2139/ssrn.1362613

Julian R. Franks (Contact Author)

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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HOME PAGE: https://ecgi.global/

Colin Mayer

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288112 (Phone)
+44 1865 288805 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Hideaki Miyajima

Waseda University - Graduate School of Commerce ( email )

1-6-1, Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050
Japan
(81 3) 5286 2019 (Phone)
(81 3) 3203 7067 (Fax)

Research Institute of Economy, Trade and Industry (RIETI) ( email )

1-3-1 Kasumigaseki
Chiyoda-ku
Tokyo 100-8901
Japan

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