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Visibility versus Complexity in Business Groups: Evidence from Japanese Keiretsu

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  • Dewenter, Kathryn
  • Novaes, Walter
  • Pettway, Richard H

Abstract

In this article, we examine the potential for external conflicts in large, diversified business groups. On the one hand, these highly visible groups facilitate the detection of opportunistic actions. Accordingly, reputational concerns should effectively constrain group behavior. On the other hand, these groups' complexities hinder outsiders from unveiling group strategies from among a myriad of transactions. This complexity limits the power of reputational concerns to constrain actions. Using data on initial public offer initial returns, we evaluate the trade-off between visibility and complexity. The evidence suggests that complexity dominates visibility, providing scope for opportunistic behavior against outside investors. Copyright 2001 by University of Chicago Press.

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  • Dewenter, Kathryn & Novaes, Walter & Pettway, Richard H, 2001. "Visibility versus Complexity in Business Groups: Evidence from Japanese Keiretsu," The Journal of Business, University of Chicago Press, vol. 74(1), pages 79-100, January.
  • Handle: RePEc:ucp:jnlbus:v:74:y:2001:i:1:p:79-100
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    2. Torben Pedersen & Steen Thomsen, 2003. "Ownership Structure and Value of the Largest European Firms: The Importance of Owner Identity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 7(1), pages 27-55, March.
    3. Roy Kouwenberg & Pipat Thontirawong, 2016. "Group affiliation and earnings management of Asian IPO issuers," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 897-917, November.
    4. Manos, Ronny & Murinde, Victor & Green, Christopher J., 2012. "Dividend policy and business groups: Evidence from Indian firms," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 42-56.
    5. Kali, Raja & Sarkar, Jayati, 2011. "Diversification and tunneling: Evidence from Indian business groups," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 349-367, September.
    6. Akhigbe, Aigbe & Martin, Anna D. & Nishikawa, Takeshi, 2009. "Changes in risk of foreign firms listed in the U.S. following Sarbanes-Oxley," Journal of Multinational Financial Management, Elsevier, vol. 19(3), pages 193-205, July.
    7. Jean McGuire & Sandra Dow, 2009. "Japanese keiretsu: Past, present, future," Asia Pacific Journal of Management, Springer, vol. 26(2), pages 333-351, June.
    8. Choi, Jongmoo Jay & Hiraki, Takato & Landi, James A., 2014. "The value of multinationality and business group for Japanese firms," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 88-110.
    9. Mehdi Nekhili & Dhikra Chebbi Nekhili & Nicolas Vaillant, 2009. "What matters more in R&D and Capital Expenditures Financing by Japanese Firms:Multinationality or Bank Affiliation?," Working Papers CREGO 1090103, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    10. Deb, Saikat Sovan & Marisetty, Vijaya B., 2010. "Information content of IPO grading," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2294-2305, September.
    11. Laurence Loulmet, 2004. "Le discrédit des banques et l’impact des réformes au Japon," Revue d'Économie Financière, Programme National Persée, vol. 75(2), pages 263-290.
    12. Kaneko, Takashi & Pettway, Richard H., 2003. "Auctions versus book building of Japanese IPOs," Pacific-Basin Finance Journal, Elsevier, vol. 11(4), pages 439-462, September.
    13. Kenneth A. Kim & John R. Nofsinger, 2005. "Institutional Herding, Business Groups, and Economic Regimes: Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 78(1), pages 213-242, January.
    14. 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.
    15. Manos, Ronny & Murinde, Victor & Green, Christopher J., 2007. "Leverage and business groups: Evidence from Indian firms," Journal of Economics and Business, Elsevier, vol. 59(5), pages 443-465.
    16. Marisetty, Vijaya B. & Subrahmanyam, Marti G., 2010. "Group affiliation and the performance of IPOs in the Indian stock market," Journal of Financial Markets, Elsevier, vol. 13(1), pages 196-223, February.
    17. 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.
    18. Jinho Chang & Young Jun Cho & Hyun-Han Shin, 2007. "The Change in Corporate Transparency of Korean Firms After the Asian Financial Crisis: an analysis using analysts' forecast data," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1144-1167, November.
    19. Nieto, María Jesús & Serna, Gregorio, 2002. "On the relationship between a banks equity holdings and bank performance," DEE - Working Papers. Business Economics. WB wb026322, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.

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