The Structure of Corporate Ownership in Japan

Abstract

I examine the structure of corporate ownership in a sample of Japanese firms in the mid 1980s. Ownership is highly concentrated in Japan, with financial institutions by far the most important large shareholders. Ownership concentration in independent Japanese firms is positively related to the returns from exerting greater control over management. This is not the case in firms that are members of corporate groups (keiretsu). Ownership concentration and the accounting profit rate in both independent and keiretsu firms are unrelated. The results are consistent with the notion that there exist two distinct corporate governance systems in Japan one among independent firms and the other among firms that are members of keiretsu. WHO ARE THE LARGE shareholders of Japanese firms and how much of the firm do they own? How important are financial institutions, nonfinancial corporations, and individuals as large shareholders? How concentrated is corporate ownership in Japan and how does it compare with corporate ownership in the U.S.? Do large shareholders in Japan respond to incentives for corporate control in the same way that they appear to in U.S. firms? Does the structure of ownership and the behavior of large shareholders differ between firms in keiretsu groups and those that are independent of such groups? Does the ownership structure of a Japanese firm have any bearing on its profitability? This paper attempts to answer these questions by analyzing the ownership structure of a sample of large Japanese firms in the mid 1980s. Many of these questions were addressed by Demsetz and Lehn (1985) and Morck, Shleifer, and Vishny (1988) for U.S. firms, and this paper borrows from both works in terms of methodology. The interest in addressing these questions for Japan stems from three factors. First, Japan differs from the U.S. because the legal and regulatory environment of Japanese financial institutions permits them to be what Jensen (1989) has termed active to a much greater extent in corporations. Institutional investors in