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A Test Of The Two‐Tier Corporate Governance Structure: The Case Of Japanese Keiretsu

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  • Kenneth A. Kim
  • Piman Limpaphayom

Abstract

We examine the effect of corporate governance structure on the relation between ownership structure and financial leverage among Japanese firms. Under normal conditions, we find no significant relation between ownership variables and financial leverage. When firms signal financial difficulties, however, keiretsu financial institution equity owners intervene to moderate the use of debt. This evidence reveals the existence of a keiretsu two‐tier corporate governance system. In the first stage, the unique corporate cross‐shareholding allows mutual monitoring under normal circumstances. In the second stage, when firms get into financial trouble, keiretsu financial institutions assume control by reducing debt levels. The results highlight differences between keiretsu and independent corporate governance structures.

Suggested Citation

  • Kenneth A. Kim & Piman Limpaphayom, 1998. "A Test Of The Two‐Tier Corporate Governance Structure: The Case Of Japanese Keiretsu," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 37-51, March.
  • Handle: RePEc:bla:jfnres:v:21:y:1998:i:1:p:37-51
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    File URL: https://doi.org/10.1111/j.1475-6803.1998.tb00268.x
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    Cited by:

    1. Chen, Ming-Yuan, 2005. "Group affiliation, identity of managers, and the relation between managerial ownership and performance," International Review of Financial Analysis, Elsevier, vol. 14(5), pages 533-558.
    2. Ferris, Stephen P. & Kim, Kenneth A. & Kitsabunnarat, Pattanaporn, 2003. "The costs (and benefits?) of diversified business groups: The case of Korean chaebols," Journal of Banking & Finance, Elsevier, vol. 27(2), pages 251-273, February.
    3. Jeffrey D. Gramlich & Piman Limpaphayom & S. Ghon Rhee, 2002. "Taxes, Keiretsu Affiliation, and Income Shifting," Tinbergen Institute Discussion Papers 02-114/2, Tinbergen Institute.
    4. Sandra Dow & Jean McGuire & Toru Yoshikawa, 2011. "Disaggregating the group effect: Vertical and horizontal keiretsu in changing economic times," Asia Pacific Journal of Management, Springer, vol. 28(2), pages 299-323, June.
    5. Carl R. Chen & Weiyu Guo & Nicholas S.P. Tay, 2010. "Are Member Firms of Corporate Groups Less Risky?," Financial Management, Financial Management Association International, vol. 39(1), pages 59-82, March.
    6. Dewenter, Kathryn L., 2003. "The risk-sharing role of Japanese keiretsu business groups: evidence from restructuring in the 1990s," Japan and the World Economy, Elsevier, vol. 15(3), pages 261-274, August.
    7. Hanazaki, Masaharu & Horiuchi, Akiyoshi, 2003. "Have Banks Contributed to Efficient Management in Japan's Manufacturing?," CEI Working Paper Series 2003-22, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    8. Beckman, Judy & Garner, Jacqueline & Marshall, Beverly & Okamura, Hideo, 2001. "The influence of underwriter reputation, keiretsu affiliation, and financial health on the underpricing of Japanese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 9(5), pages 513-534, November.
    9. Masaharu Hanazaki & Akiyoshi Horiuchi, 2000. "Have Banks Contributed to Efficient Management in Japan's Manufacturing?," CIRJE F-Series CIRJE-F-76, CIRJE, Faculty of Economics, University of Tokyo.
    10. repec:bla:jrinsu:v:84:y:2017:i:2:p:599-629 is not listed on IDEAS
    11. Todeva, Emanuela, 2005. "Governance, control and coordination in network context: the cases of Japanese Keiretsu and Sogo Shosha," Journal of International Management, Elsevier, vol. 11(1), pages 87-109, March.
    12. Jean McGuire & Sandra Dow, 2009. "Japanese keiretsu: Past, present, future," Asia Pacific Journal of Management, Springer, vol. 26(2), pages 333-351, June.
    13. Gene C. Lai & Piman Limpaphayom, 2003. "Organizational Structure and Performance: Evidence From the Nonlife Insurance Industry in Japan," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(4), pages 735-757, December.

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