Koito Case Study

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1. The Japanese corporate governance system differs vastly from the US system. Discuss corporate governance issues that may arise under the Japanese keiretsu system from the perspective of a) financiers b) owners c) suppliers and d) employees. A Japanese keiretsu is effectively a system of cooperation among various stakeholders. From the Japanese point of view, corporate governance includes maximization of long-term corporate value for shareholders and accountability to all the stakeholders, particularly shareholders (Corporate Governance Committee of Japan 1997). This model appears more attractive than the Anglo-Saxon corporate governance model since it takes social benefits into account. However, it must be noticed that the workability of this model relies on a flawless functioning of the market economy, which is not always the case in Japan (ibid). The later paragraphs will discuss in detail the corporate governance issues related to the Japanese keiretsu system in relation with financiers, owners, suppliers and employees. a) Financiers As shown in Exhibit 8 – Ownership Structure of Major Japanese Automotive Assemblers (1989), banks in Japan usually hold a substantial portion of equity in borrowing companies. The Japanese model is often perceived as efficient since it encourages information flow between firms and their lending banks (Hoshi 1997, Kashyap 1999 and Scharfstein 1990). However, there are potential problems that cannot be ignored. Firstly, financiers can influence the behavior of the borrowing firm. For instance, as major shareholders, banks can ‘induce firms borrow more than profit maximization would warrant’ (Yafeh 2000 p79). In addition, banks can exert pressure on firms to adopt low-risk low-return investment strategies that do not optimize shareholders’ value (Ibid). It is important to note that Anglo-Saxon styled stock-market finance is

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