Conglomerate Structure and Capital Market Timing

Abstract

We examine the effects of keiretsu structure on capital market timing. Keiretsu groups offer a hybrid structure between fully integrated conglomerates and stand alone firms. We find that past market conditions affect the capital structure of keiretsu firms more than they affect the capital structure of unaffiliated firms. The decision to issue equity is more correlated with market conditions for keiretsu members than it is for unaffiliated firms. The stock returns of keiretsu firms following the issuance of equity decrease with the size of the issuance. These results suggest that keiretsu members time the issuance of equity more so than stand alone firms.

Keywords: Conglomerates, Keiretsu, Capital Structure, Market Timing, Japanese Markets, Japanese Firms

JEL Classification: G31, G32, G21