Japanese Corporate Groupings (Keiretsu) and the Characteristics of Analysts' Forecasts

Review of Quantitative Finance and Accounting, Vol. 23, pp. 79-98, 2004

34 Pages Posted: 27 Jan 2007

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)

Wikil Kwak

University of Nebraska at Omaha - Department of Accounting

Abstract

This study examines differences in the characteristics of analysts' forecasts of earnings for keiretsu and non-keiretsu firms in Japan. Japanese industrial organization is characterized by enterprise groupings, keiretsu, composed of firms in different industries, but interrelated through cross-holdings of ownership. The strong interrelations of the Japanese keiretsu have been shown to increase the monitoring of managerial performance. An alternative view of keiretsu stewardship suggests the exclusionary environment within a keiretsu creates an information monopoly, resulting in greater information asymmetry between inside and outside constituents. These two views provide opposing predictions on how keiretsu groupings potentially affect the characteristics of earnings forecasts made by analysts: increased monitoring will improve the forecast characteristics of earnings, while the opposite is true under an information monopoly. Our results suggest that forecast accuracy (dispersion) is higher (lower) for keiretsu firms than non-keiretsu firms, supporting a monitoring role by keiretsu. The results also show that keiretsu firms' forecast characteristics are related to the strength of the keiretsu relationship, providing further evidence that it is indeed the keiretsu relationship that increases the monitoring of management, which ultimately improves the accuracy and dispersion of analysts' forecast.

Keywords: analyst earnings forecast, Japanese corporate ownership, keiretsu, monitoring

JEL Classification: M41, N25, G14, G15

Suggested Citation

Douthett, Edward B. and Jung, Kooyul and Kwak, Wikil, Japanese Corporate Groupings (Keiretsu) and the Characteristics of Analysts' Forecasts. Review of Quantitative Finance and Accounting, Vol. 23, pp. 79-98, 2004. Available at SSRN: https://ssrn.com/abstract=959673

Edward B. Douthett

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)

Wikil Kwak (Contact Author)

University of Nebraska at Omaha - Department of Accounting ( email )

College of Business Administration
60th and Dodge Streets
Omaha, NE 68182
United States

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