KeiretsuAffiliation and Equity Values in Japan

Edward B. Douthett, Kooyul Jung and YoungKyu Park
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Edward B. Douthett: School of Management, George Mason University, 4400 University Drive MSN 5F4, Fairfax, VA 22030, USA
Kooyul Jung: Graduate School of Management, Korea Advanced Institute of Science and Technology, Seoul, Korea
YoungKyu Park: Graduate School of Management, Korea Advanced Institute of Science and Technology, Seoul, Korea

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 04, 525-545

Abstract: This study examines the association betweenkeiretsuaffiliation and corporate equity value in Japan. We hypothesize that,ceteris paribus,keiretsufirm value, measured as Tobin's Q, is higher than non-keiretsufirm value, reflecting the improved or active monitoring role of thekeiretsuarrangement. The empirical tests are supportive after controlling for other financial and ownership variables. The results also show thatkeiretsufirm value is positively related to the strength of thekeiretsu. This is additional evidence that the monitoring provided by thekeiretsurelationship does indeed increase corporate equity value, and that the source of the increase in value is not merely a result of cross-shareholding, but inherent to thekeiretsuarrangement. However, the effect ofkeiretsumembership and influence on market equity values has apparently diminished since 1990 (the post-market crash period in Japan).

Keywords: Keiretsumonitoring and strength of influence; ownership structure; equity value; JEL Classification: G14; JEL Classification: G15; JEL Classification: G32 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219091504000226

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