The Value Information of Financing Decisions and Corporate Governance during and after the Japanese Deregulation

Change and continuity in Japanese corporate governance

“…First, bank influence on industrial firms decreased, particularly in export industries and among high growth sectors where flexibility and risk taking were particularly important (Inoue, 1999;Morck & Yeung, 2006). Increased reliance on non-bank debt among these firms can be traced not only to their greater access to such financing, but also to the inconsistency between their strategic needs for innovation and risk-taking and bank preference for low risk and tangible investments (Wu & Xu, 2005).…”

Managerial entrenchment and the value of dividends

“…The independent variables included past, current, and future values of dividends, interest expenses, earnings, and R&D expenditure. Following Wu and Xu (2005), I include three values of capital expenditure, creating an alternative proxy for corporate investment. I place a control for cash holdings and operating cash flows because corporate governance affects the value effects of liquid assets (Pinkowitz et al 2006;Dittmar and Mahrt-smith 2007).…”

“…Their results support the agency explanation. Wu and Xu (2005) focus on a unique feature of the Japanese corporate sector, Keiretsu (a group of companies with linked business interests), to examine the value implication of financing decisions. They document that Keiretsu hands-on corporate governance and finance incurred more costs than benefits.…”

Disaggregating the group effect: Vertical and horizontal keiretsu in changing economic times

“…While these premiums may reflect the benefits of bank monitoring, such benefits have been increasingly scrutinized (Beck & Levine, 2002). In fact, as financial deregulation accelerated, the costs of bank-centered affiliation may have risen Kim et al, 2004;Wu & Xu, 2005). Although banks play a lesser role in vertical keiretsu, members of vertical keiretsu may also take increasing advantage of less expensive non-bank financing.…”