2006 Reports

The Strategic Logic of Japanese Keiretsu, Main Banks and Cross-Shareholdings, Revisited

Schaede, Ulrike

This paper introduces recent fundamental changes in Japan's political economy, and analyzes how these have affected the country's industrial architecture in terms of business group organization. Whereas previously, long-term, stable relations with other firms, banks and shareholders afforded great advantage to many companies, the new dynamic environment has led more and more banks and companies to turn away from stable "insurance" arrangements. The paper shows that a revision of corporate law towards more managerial flexibility paired with broader powers by shareholders matches this shift towards greater transparency, accountability, and competitive strategic positioning. Therefore, processes of corporate governance are also greatly altered. Our perceived wisdom of Japanese business organization needs to be updated.