This paper presents evidence that suggests that in Japan, corporate ownership structure affects the relation between capital investment expenditures and firm performance. Specifically, there is a negative relation between capital expenditures and subsequent risk-adjusted returns amongst keiretsu firms, which have a strong banking relationship, but a positive relation amongst independent firms. There is no relation between these returns and financial constraints for keiretsu firms. However, the positive relation between capital investments and stock returns for independent firms is strongest for those firms that have the lowest cash flows, and are thus likely to be the most financially constrained.

This book carefully examines the effects of changes in the corporate governance structure on corporate behavior or company performance, using micro-data from listed companies in Japan. The author found that in Japan the introduction of stock options had neither a positive impact on profitability nor the negative side effects of promoting risk-taking behaviors. Furthermore, he found that corporate diversification and division of corporations showed negative impacts on profitability. The corporate governance structure of Japan has exhibited a large change from the second half of the 1990s to the present. There have been institutional reforms involving enterprise law, such as the introduction of stock options and the removal of the ban on holding companies. With respect to the ownership structure of a company, discernible trends are that the equity holdings of financial institutions and business corporations have fallen while the presence of foreign stockholders has risen. These trends are often pointed out as signs that the Japanese corporate governance structure has been approaching the American model and that this will energize Japanese firms. The author contradicts common academic theories, however, and concludes that the formation of the corporate governance which emphasizes the agency problem between shareholders and corporate managers is inadequate. He suggests that an institutional arrangement for a corporate governance system that values a variety of stakeholders' interests is greatly needed and concludes that perspectives on maximizing surplus values for various stakeholders and distributing the surpluses appropriately among the stakeholders will become increasingly important for the purpose of managing corporations.

This is a reprint of a previously published work. It deals with japanese mergers and acquisitions which reached a zenith in the 1980s.

Business practices in Japan inspire fierce and even acrimonious debate, especially when they are compared to American practices. This book attempts to explain the remarkable economic success of Japan in the post-war period - a success it is useful to understand in a time marked by controversial trade imbalances and concerns over competitive industrial performance.