Has the control-oriented industrial finance system faded away? A comparative analysis of Japan and Sweden

Abstract

This article compares financial groups in Japan and Sweden in order to examine functional and structural changes and continuities since the 1980s. The main question is to what extent controlling blocks and symbiotic relationships to banks have faded away in favor of arm's length distance between actors and a more market-oriented system reminiscent of those in the United Kingdom and the United States. The article gives an insight into how the industrial finance system in Japan and Sweden have responded to the deregulation of the credit market in the 1980s, the financial and industrial crises in the early 1990s and early twenty-first century, and the globalization of markets and businesses. The choice of Japan and Sweden is motivated by the fact that these countries by tradition have been two of the strongest representatives of a control-oriented industrial finance system in the world. In this article, a diachronic and synchronic comparative analysis is used, with focus on four distinctive parameters of the industrial finance system: ownership and control, bank relationships, crisis management and personal networks. The article draws on empirical findings from a variety of sources, including archives.

Notes

1. For Japan: Fair Trade Commission, Situation for Company Groups 1992, 1994 and 2001 (Tokyo: Toyo/Keizai Inc. and HP of Trade Commission, 2004); M. Simotani, Japanese Keiretsu and Company Groups (Tokyo: Yuhikaku, 1993); H. Kikuchi, ‘Shareholdings of the Six Company Groups in 2003’, JSRI Journal of Financial and Securities Markets, no.45 (2004): 121–38; M. Simotani, The Age of Holding Companies (Tokyo: Yuhikaku, 2006). The sources and literature used for Japan are only published in Japanese; only the titles have been translated for this article. For Sweden: Swedish Financial Supervisory Authority, Yearbooks of Owners and Power of Sweden's Listed Companies (Stockholm: Dagens Nyheters Förlog, various years).

2. The six financial groups were formed from 1951 to 1971. For research on Japanese financial groups, see M. Aoki and H. Patrick, eds, Japanese Main Bank System (Tokyo: Toyo Keizai, 1996); H. Okumura, Six Japanese Company Groups (Tokyo: Asahi Shimbun, 1994); J. Hashimoto and H. Takeda, eds, Japanese Economic Development and Company Groups (Tokyo: University of Tokyo Press, 1992); K. Suzuki, Main Banks and Company Groups: The System for Companies after World War II (Tokyo: Minerva, 1998).

3. S. Collin, Ägande och effektivitet: Wallenberggruppens och Svenska Handelsbanksgruppens struktur, funktion och effektivitet, Lund Studies in Economics and Management 35 (Lund: Lund University Press, 1997); J. Glete, Nätverk i näringslivet (Stockholm: SNS Förlag, 1994); H. Lindgren, Aktivt ägande. Investor under växlande konjunkturer (Stockholm: Norstedts, 1994); H. Sjögren, Den uthålliga kapitalismen (Stockholm: SNS Förlag, 2005).

4. Since the Fair Trade Commission has not continued to publish this report, we do not know if this trend continued after 2000. However, another study shows that the rate of average cross shareholding in the six financial groups has decreased (see Kikuchi, ‘Shareholdings’).

5. Fair Trade Commission, Company Groups 2001, 4.

6. K. Suzuki, ‘Main Bank Relationships and Cross Shareholdings’, Journal of Commerce 46, no. 4 (2005): 221–4.

7. T. Hoshi, A. Kashyap and D. Scharfstein, ‘Corporate Structure, Liquidity and Investment: Evidence from Japanese Industrial Groups’, Quarterly Journal of Economics, February (1991).

8. Fair Trade Commission, Company Groups 2001, 15; T. Kikkawa, ‘Japanese Company Groups in Global Competition’, Journal of Social Science 54, no. 6 (2003): 18–20.

9. Industrial Revitalization Corporation of Japan was established on 16 April 2003 and continued until 15 March 2007 (The Nikkei, 10 March, 2007).

10. A. Tanaka, ‘Prospects and Problems for 21st Century's General Trading Company’, Kagaku Keizai 50, no. 7 (2003): 51–2.

11. The purpose of the presidents’ meetings is to exchange information about member companies; coordinate the business of member companies within the group; consult about presidents’ and directors’ appointments, in some cases; and coordinate common activities (e.g., trade marks).

12. See K. Suzuki, ‘Company Groups in Global Competition (1)–(2)’, St Andrew's University Economic and Business Review, Part 1 42, no. 2 (2001): 151–190 and no. 3 (2002): 151–204.

13. The ‘one-set policy’ refers to the ambition of the financial groups to cover almost all industrial sectors. Some groups have actively incorporated certain industrial companies when they have lacked such companies compared to other financial groups (Y. Miyazaki, Economic Mechanism in Japan after World War II (Tokyo: Shinhyoron, 1966), 53; Y. Hattori, Financial Capital and Stock Market (Kyoto: Houritsu Bunka Sha, 1993), 82–99.

14. A. Tanaka, ‘The New Situation for Company Groups and General Trading Company’, Kagaku Keizai 51, no. 7 (2004): 88–9.

15. Fair Trade Commission, Company Groups 2001, 1.

16. Simotani, Holding Companies, 131–7.

17. Suzuki, ‘Main Bank Relationships’, 230–3. However, we can not prove this for all credit relationships in the financial groups due to limited access to data.

18. Fair Trade Commission, http://www.jftc.go.jp/nenpou/h12/12kakuron00002-9.html (accessed 15 May 2007).

19. The percentage of total shareholding by foreigners continued to increase in the 1990s, and in March 2004 it reached 21.8% T. Wakasugi, ed., The Day When Shareholders Woke Up: Changing Corporate Governance in Japan (Tokyo: Capital Markets Research Institute/Syojihomu, 2004), 258.

20. A famous one is the hostile takeover bid on Nippon Broadcasting System in 2005 by Livedoor, one of the largest IT companies at that time.

21. See, e.g., H. Okumura, Varnished Capitalism: Enron and Livedoor (Tokyo: Toyo Keizai, 2006).

22. The deregulation of buying own shares (1994) and the deregulation of treasury shares (2001) (see Simotani, Holding Companies, 19–24).

23. In these figures we have controlled for changes due to M&A and changes in company names between 1990 and 2003.

24. E. Berglöf and H. Sjögren, ‘Combining Arm's-length and Control-oriented Finance: Evidence from Main Bank Relationships in Sweden’, in Special Issue on Corporate Governance and Property Rights (Milan: Fondazione Eni Enrico Mattei 1996), 46.

25. Owners and Power, Yearbook 1985; Owners and Power Yearbook 2006.

26. Lindgren, Aktivt ägande, 219–30.

27. Owners and Power, Yearbook 1985; Owners and Power Yearbook 2006.

28. Lindgren, Aktivt ägande, 245–8.

29. Collin, Ägande och effektivitet, 103–4.

30. Economic Policy Group, Report (Stockholm: SNS, 2003), 67–9.

31. J. Hayward, ed. Industrial Enterprise and European Integration: From National to International Champions in Western Europe (Oxford: Oxford University Press, 1995).

32. Economic Policy Group, Report, 68.

33. Economic Policy Group, Report, 147–8, 157.

34. H. Kawakita, Structural Change of the Japanese Stock Market: Reorganization of the Financial System and Governance (Tokyo: Toyo Keizai, 1995), 68–71, 82–5.

35. M. Kishida, ‘The Formation Process of the Global Heavy Engineering Company ABB’ (diss., Kyoto University, 2004).

36. Okumura, Company Groups.

37. There have been no family connections in financial groups in Japan since the Second World War, although a few member companies are owned by their founding family.

38. Sjögren, Den uthålliga kapitalismen.