Keiretsu Affiliation and Equity Values in Japan
22 Pages Posted: 28 Jan 2007 Last revised: 19 May 2015
Date Written: 2004
This study examines the association between keiretsu affiliation and corporate equity value in Japan. We hypothesize that, ceteris paribus, keiretsu firm value, measured as Tobin's Q, is higher than non-keiretsu firm value, reflecting the improved or active monitoring role of the keiretsu arrangement. The empirical tests are supportive after controlling for other financial and ownership variables. The results also show that keiretsu firm value is positively related to the strength of the keiretsu. This is additional evidence that the monitoring provided by the keiretsu relationship does indeed increase corporate equity value, and that the source of the increase in value is not merely a result of cross-shareholding, but inherent to the keiretsu arrangement. However, the effect of keiretsu membership and influence on market equity values has apparently diminished since 1990 (the post-market crash period in Japan).
Keywords: keiretsu monitoring and strength of influence, ownership structure, equity value
JEL Classification: G14, G15, G32
Suggested Citation: Suggested Citation