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The Ownership of Japanese Corporations in the 20 th Century. Julian Franks London Business School, CEPR and ECGI Colin Mayer Sa ïd Business School, Oxford University, CEPR and ECGI Hideaki Miyajima Waseda University and RIETI. Introduction.
London Business School, CEPR and ECGI
Saïd Business School, Oxford University, CEPR and ECGI
Waseda University and RIETI
1) Business coordinators in the 1900s
2) Zaibatsu HC (family business groups) in the 1930s
Pre-WW2: 2 samples
1900-1937 based on largest 100 Cos in 1918 (N=50) & 1930 (N=29), alive in 1940.
1918 sample had to be incorporated pre-1907 (mainly textiles, food, light engineering)
1930 sample incorporated pre 1921 (more heavy engineering, shipbuilding, chemicals)
No Zaibatsu in 1907, 21 out of 29 zaibatsu affiliated in 1930 sample
Post WW2 sample: Largest 100 firms by assets in 1937 or 1955 (total 126).
A comparison of C3 & C5 in UK and Japan
(insider ownership less than 30%)
LLSV Score in Japan
1) monitoring newly established firms in the face of a large number of cases of fraud
2) providing general business advice and promoting business relations with other firms
2/3 of firms had (at least) 1 business coordinator
Test Sample = 121 firms, 21 firms 1900, 50 firms in 1907 and 1914
C5 & no. of shareholders = F (Cordummy, size, year incorporated, industry, yeardummy)
Cordummy is 1, if coordinator took a seat on board of directors, or/and was one of largest ten shareholders.
Result = significantly negative at 5% level. Lower concentration and high no. of shareholder with business coordinator
1930s is a bull market for equities & IPOs
Zaibatsu played the same certification role as business coordinators:
Estimation results: negativerelation between zaibatsu and Δownership concentration and positive relation with new equity issues in our panel of firms
Zaibatsu dummy (one = Mitsui, Mitsubishi, Sumitomo, Furukawa, Nissan) is significantly negative. Larger negative changes in concentration of ownership with zaibatsu (13-15% lower than other firms.
Zaibatsu dummy is significantly positive.
First mechanism: Deleveraging
INSIDE =F(SIZE, LA, Distress dummy)
Sample is 126 largest firms/ Period : 1950-1955 and 1962-1967
INSIDE= insider ownership which is % share held by managers, banks and other corporations
LA = leverage (borrowing/ asset t-1),
Distress dummy is one if firm had negative profits in estimation period.
LA is significantly positive in the 1950s.
Distress dummy is significantly positive in the 1960s.
Firms in poorer financial condition were more likely to have insider ownership. More leverage is associated with higher insider ownership.
Evidence: Distressed companies reorganized through the Corporate Reorganization code: 19 cases of 30 bankrupt firms engaged in debt for equity swap from 1953-1965 (equity swapped was 75% of post-swap equity).
Case study 1: Workout. Oumi Silk had debt ratio of 71% in 1951. Faced financial distress after Korean War ended. Through debt for equity swap insider ownership rose from 28% in 1953 to 60% in 1955.
Case study 2: Bankruptcy. Sun Wave Corporation. 1964 plan of reorganization offered debt for equity swaps with 18 secured creditors of which 10 were banks. 9 refused and shares allocated to other 3 largest creditors including Iwai Industrial Co. Mitsui & Nissan Steel.