Corporate Diversification of Japanese Firms

Abstract

Many studies on US firms use information on business segments as the indicator of corporate diversification. However, this presents problems given the segmental reporting disclosure system in Japan because around half of corporations do not disclose segmental information. Therefore, I mainly use an analytical approach based upon a comparison between non-consolidated financial statements and consolidated financial statements, as parent companies promote corporate diversification through their consolidated subsidiaries. Comparing among Japanese companies shows that the ratios of consolidated sales or total assets to the parent companies’ sales or total assets are relatively small and that Japanese firms have many consolidated subsidiaries. These facts would suggest that the division of corporations often includes the establishment of subsidiaries, which operate the service and supporting businesses for their parent companies, and may suggest that corporate diversification and division of corporations in Japanese firms is quite different from empire building or overinvestment.