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Does Ownership Matter? Evidence from the Zaibatsu Dissolution Program

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  • Yoshiro Miwa
  • J. Mark Ramseyer

Abstract

In 1985, Demsetz and Lehn argued both that the optimal corporate ownership structure was firm-specific, and that market competition would drive firms toward that optimum. Because ownership was endogenous to expected performance, any regression of profitability on ownership patterns would yield insignificant results. To test this hypothesis, we use the zaibatsu dissolution program from late-1940s Japan as a natural experiment: an exogenous shock to the equilibrium ownership structure. Through that program, the US-run occupation removed the more prominent shareholders from many of the most successful Japanese companies. By focusing on the way firms and investors responded to the mandated selloff, we accomplish two goals: (a) we avoid the endogeneity problem that has plagued much of the other research on the subject, and (b) we clarify the equilibrating dynamics by which competitive markets move firms toward their optimal ownership structure. With a sample of 637 Japanese firms for 1953 and 710 for 1958, we confirm the equilibrating mechanism behind the Demsetz-Lehn hypothesis: between 1953 and 1958, the ex-zaibatsu firms did retructure their ownership patterns. As of 1953, the unlisted ex-zaibatsu and new firms still had not been able to negotiate the transactions necessary to approach their profit-maximizing ownership structures. Even the listed firms had not fully undone the effect of the occupation-induced changes on managerial practices. By 1958 the firms had done this, and the earlier correlation between profitability and ownership disappeared. By then, firm profitability showed no correlation with ownership, whether under linear, quadratic, or piecewise specifications. We further find no evidence that ex-zaibatsu firms sought to strengthen their ties to banks over 1953-1958. Copyright (c) 2003 Massachusetts Institute of Technology.

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Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 12 (2003)
Issue (Month): 1 (03)
Pages: 67-89

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Handle: RePEc:bla:jemstr:v:12:y:2003:i:1:p:67-89

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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  1. Miyajima Hideaki, 1994. "The Transformation of Zaibatsu to Postwar Corporate Groups--From Hierarchically Integrated Groups to Horizontally Integrated Groups," Journal of the Japanese and International Economies, Elsevier, vol. 8(3), pages 293-328, September.
  2. Frankl, Jennifer L., 1999. "An Analysis of Japanese Corporate Structure, 1915–1937," The Journal of Economic History, Cambridge University Press, vol. 59(04), pages 997-1015, December.
  3. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  4. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  5. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
  6. Hermalin, B.E. & Weisbech, M.S., 1991. "The Effects of Board Composition and Direct Incentives on Firm Performance," Papers 91-02, Rochester, Business - Financial Research and Policy Studies.
  7. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
  8. Clifford G. Holderness & Randall S. Kroszner & Dennis P. Sheehan, 1999. "Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression," Journal of Finance, American Finance Association, vol. 54(2), pages 435-469, 04.
  9. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  10. Prowse, Stephen D, 1992. " The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-40, July.
  11. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
  12. Wruck, Karen Hopper, 1989. "Equity ownership concentration and firm value : Evidence from private equity financings," Journal of Financial Economics, Elsevier, vol. 23(1), pages 3-28, June.
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Cited by:
  1. Yoshiro Miwa & J. Mark Ramseyer, 2003. "Does Relationship Banking Matter? Japanese Bank-Borrower Ties in Good Times and Bad," CIRJE F-Series CIRJE-F-239, CIRJE, Faculty of Economics, University of Tokyo.
  2. Christian Weiss & Stefan Hilger, 2012. "Ownership concentration beyond good and evil: is there an effect on corporate performance?," Journal of Management and Governance, Springer, vol. 16(4), pages 727-752, November.
  3. Yoshiro Miwa & J. Mark Ramseyer, 2005. "The Good Occupation," CIRJE F-Series CIRJE-F-340, CIRJE, Faculty of Economics, University of Tokyo.
  4. Yoshiro Miwa & J. Mark Ramseyer, 2002. "The Fable of the Keiretsu," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 169-224, 06.
  5. Pertti Haaparanta & Tuuli Juurikkala & Olga Lazareva & Ekaterina Zhuravskaya & Jukka Pirttilä & Laura Solanko, 2004. "Firms and public service provision in Russia," Macroeconomics 0401015, EconWPA.

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