The Value Information of Financing Decisions and Corporate Governance During and after the Japanese Deregulation
Posted: 18 Mar 2003
Using Fama and French's (1998) framework, we investigate how firm value is related to financing decisions and corporate governance, during and after the Japanese deregulation (1974 to 1997). We find that there is rich information about firm value from financing decisions. The value information is especially strong in the case of adverse keiretsu effects on bank financing in the 1980s, when keiretsu banks were still influential. This suggests that the keiretsu practices of hands-on corporate governance and finance brought about more costs (due to rent seeking on behalf of keiretsu banks) than benefits from mitigating agency conflict and asymmetric information. Our evidence shows (in an evolutionary perspective) that Japan's deregulation changed the value information from leverage, loan-to-debt ratio and dividends and made it more compatible with a market-oriented financial system. This presaged the waning of traditional keiretsu corporate governance in Japan.
Keywords: Firm value, Financing Decisions, Financial Deregulation, Keiretsu, Corporate Governance
JEL Classification: G30, G32, G21
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