Keiretsu Affiliation and Equity Values in Japan

22 Pages Posted: 28 Jan 2007 Last revised: 19 May 2015

See all articles by Edward B. Douthett

Edward B. Douthett

George Mason University - School of Business

Kooyul Jung

Ulsan National Institute of Science and and Technology (UNIST)

Young Kyu Park

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Management

Date Written: 2004

Abstract

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

Douthett, Edward B. and Jung, Kooyul and Park, Young Kyu, Keiretsu Affiliation and Equity Values in Japan (2004). Review of Pacific Basin Financial Markets and Policies, Vol. 7, No. 4, pp. 525-545, 2004; KAIST Business School Working Paper Series . Available at SSRN: https://ssrn.com/abstract=959641

Edward B. Douthett (Contact Author)

George Mason University - School of Business ( email )

Kooyul Jung

Ulsan National Institute of Science and and Technology (UNIST) ( email )

Ulju-Gun Yeonyang-Euip
UNIST Rod 50
Ulsan
Korea
+82-052-217-3121 (Phone)

Young Kyu Park

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Management ( email )

85 Hoegiro, Dongdaemun-gu
Seoul, 130-722
Korea, Republic of (South Korea)

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