IDEAS home Printed from
   My bibliography  Save this paper

Role of Holding Companies in Prewar Japanese Economic Development: Rethinking Zaibatsu in Perspectives of Corporate Governance


  • Tetsuji Okazaki

    (Faculty of Economics, University of Tokyo)


This paper examines the function of corporate governance of the zaibatsu holding companies. Since 19th century, or in some cases since 17th century, zaibatsu accumulated assets and diversified them into various businesses. Expansion and diversification of the businesses caused problems which resulted from asymmetric information, namely adverse selection and moral hazard of the agents who executed the businesses. In order to resolve these problems, zaibatsu introduced organizational innovation. By early 1920's, each zaibatsu established the holding company, while it separated the businesses into joint-stock companies. The holding company of zaibatsu had the organizations and full-time stuffs to monitor the affiliated companies. In many cases, the concerning sections of the holding company, such as the section of audit, inspection etc., checked the budget and financial data of the affiliated companies, while the matters of the board of directors were approved by the holding company ex ante and ex post. There existed systematic rules on the allocation of powers between the holding company and the affiliated companies. Also, the holding company frequently dispatched directors to the affiliated companies. The efficacy of these devices of governance was tested quantitatively. We compared ROE between zaibatsu affiliated firms and non-zaibatsu firms, using panel data of 135 firms from 1922 to 1936. By controlling the effects of company scale, industry-specific shocks, and macro-shocks, we obtained the result that zaibatsu-affiliated firms clearly outperformed the other companies. This result supports the hypothesis that the zaibatsu holding company played the role of monitoring the affiliated companies. Besides this governance function concerning the affiliated companies, zaibatsu also disciplined the non-affiliated companies in the capital market. The holding companies and the core affiliated companies frequently executed take over, which contributed to restructure the targeted companies, thorough replacement of the directors, assistance of management.

Suggested Citation

  • Tetsuji Okazaki, 2000. "Role of Holding Companies in Prewar Japanese Economic Development: Rethinking Zaibatsu in Perspectives of Corporate Governance," CIRJE F-Series CIRJE-F-74, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2000cf74

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Mitsuru Sunada, 2012. "Competition among movie theaters: an empirical investigation of the Toho–Subaru antitrust case," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 36(3), pages 179-206, August.
    2. Okazaki, Tetsuji & Sawada, Michiru & Yokoyama, Kazuki, 2005. "Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry," The Journal of Economic History, Cambridge University Press, vol. 65(4), pages 1082-1115, December.
    3. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2005. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry ?Published in "Journal of Economic History", Dec2005, Vol. 65 Issue 4, p1082-1115, 34p," CARF F-Series CARF-F-039, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2000cf74. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.