Control and Coordination of Functional Subsidiaries in Japanese Corporate Groups

Abstract

This paper is an exploratory research that examines how large Japanese corporate groups manage their subsidiaries. The analysis focuses on comparing the main literatures on corporate group management with actual management practices of large corporate groups. The empirical study is based on an in-depth analysis of five Japanese Corporate Groups. The findings of the study indicate that in addition to what has been known in existing academic literatures, Japanese corporate groups have other reasons for maintaining their group boundary, such as benefits from having more transaction options, mutual dependency, ex-post parent-subsidiary lock-in, and coordinating systems that allow decentralization without damaging incentives of their subsidiaries. The findings also indicate that amongst many other factors, dependency is an important factor that affects parent and subsidiary relationship, and thus a typology that distinguishes different types of subsidiaries based on dependency could be useful as a management tool for identifying and solving parent-subsidiary issues, as well as a framework for expanding existing theories.