Windfall Profits and Vertical Relationships: Who Gained in the Japanese Auto Industry from VERs?

Abstract

This paper employs an event study to analyze the effect of the 1981 voluntary export restraint agreements on profits in the Japanese automobile industry. Stock price movements of seven Japanese automakers and sixty-nine of their suppliers are examined. The results indicate that the profits of Japan's producers of passenger cars rose as a result of the voluntary export restraints, while only some suppliers, large ones and those producing specialized parts or services, appear to have shared the benefits. Voluntary export restraints increased profits for some firms in the Japanese auto industry but many suppliers did not share the windfall. Copyright 1993 by Blackwell Publishing Ltd.