A Frog in a Well Knows Nothing of the Ocean: A History of Corporate Ownership in Japan

A HISTORY OF CORPORATE GOVENANCE AROUND THE WORLD: FAMILY BUSINESS GROUPS TO PROFESSIONAL MANAGERS, Randall Morck, ed, Chapter 7, pp. 367-466, University of Chicago Press, 2005

71 Pages Posted: 3 Feb 2010

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business

Date Written: January, 25 2010

Abstract

Japan’s corporate sector has, over the past century, been reorganized according to every major corporate governance model. Prior to World War II, wealth Japanese families locked in their control over large corporations by organizing them into pyramidal groups, called zaibatsu, similar to structures currently found in Canada, France, Korea, Italy, and Sweden. In the 1930s, the military government imposed a centrally planned command economy, with private property rights retained as little more than a legal fiction. The American occupation force replaced this with a widely held corporate sector similar to that of the United Kingdom and United States. A bout of takeovers and greenmail ensued. To defend their positions, Japanese top executives placed small numerous blocks of stock with each other’s firms, creating dense networks of small intercorporate blocks that summed to majority blocks in each firm. These networks, called keiretsu, halted hostile takeovers completely. Although their primary functions were to lock in corporate control rights, both zaibatsu and keiretsu were probably also rational responses to a variety of institutional failings. Successful zaibatsu and keiretsu were enthusiastic political rentseekers, raising the possibility that large corporate groups are better at influencing government than free standing firms. In the case of keiretsu especially, this rent seeking probably retarded financial development and created long-term economic problems.

Keywords: Business Group, Takeover Defence, Flavors of Capitalism, Financial History

JEL Classification: G3, P5, O53, N25

Suggested Citation

Morck, Randall K. and Nakamura, Masao, A Frog in a Well Knows Nothing of the Ocean: A History of Corporate Ownership in Japan (January, 25 2010). A HISTORY OF CORPORATE GOVENANCE AROUND THE WORLD: FAMILY BUSINESS GROUPS TO PROFESSIONAL MANAGERS, Randall Morck, ed, Chapter 7, pp. 367-466, University of Chicago Press, 2005. Available at SSRN: https://ssrn.com/abstract=1542289 or http://dx.doi.org/10.2139/ssrn.1542289

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8434 (Phone)
604-822-8477 (Fax)

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