Been There, Done that. The History of Corporate Ownership in Japan

150 Pages Posted: 14 Jul 2003

See all articles by Masao Nakamura

Masao Nakamura

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

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

Date Written: July 2003

Abstract

Japan's corporate sector has, at different times in recent history, been organized according to every major 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 others' 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 rent-seekers, 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: ownership, control, zaibatsu, pyramids, keiretsu, corporate groups, financial development, political economy

JEL Classification: G32, G34, K22, N2

Suggested Citation

Nakamura, Masao and Morck, Randall K., Been There, Done that. The History of Corporate Ownership in Japan (July 2003). ECGI - Finance Working Paper No. 20/2003; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=422120 or http://dx.doi.org/10.2139/ssrn.422120

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)

Randall K. Morck (Contact Author)

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

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

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