A Test of the Two-Tier Corporate Governance Structure: The Case of Japanese Keiretsu

Journal of Financial Research, Vol. 20, No. 4 (1997).

Posted: 1 Sep 1997

See all articles by Piman Limpaphayom

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University

Kenneth Kim

Tongji University - School of Economics and Management; SUNY at Buffalo - School of Management

Abstract

We examine the effect of corporate governance structure on the relation between ownership structure and financial leverage among Japanese firms. Under normal conditions, no significant relation between ownership variables and financial leverage exists. When firms signal financial difficulties, however, keiretsu financial institution equity owners intervene to moderate the use of debt. This evidence reveals the existence of a keiretsu two-tier corporate governance system. In the first stage, the unique corporate cross-shareholding allows mutual monitoring under normal circumstances. In the second stage, when firms get into financial trouble, keiretsu financial institutions assume control by reducing debt levels. The results highlight differences between keiretsu and independent corporate governance structures.

JEL Classification: G32

Suggested Citation

Limpaphayom, Piman and Kim, Kenneth A., A Test of the Two-Tier Corporate Governance Structure: The Case of Japanese Keiretsu. Journal of Financial Research, Vol. 20, No. 4 (1997)., Available at SSRN: https://ssrn.com/abstract=11401

Piman Limpaphayom (Contact Author)

Sasin GIBA of Chulalongkorn University ( email )

Chula 12, Phyathai Road
Bangkok, 10330
Thailand
662 2184058 (Phone)
662 2153797 (Fax)

Kenneth A. Kim

Tongji University - School of Economics and Management ( email )

Siping Road 1500
Shanghai, Shanghai 200092
China

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

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