Research Paper The Formation of Multiple-Unit Business Groups by Japanese Companies and the Governance of Subsidiaries

Sumi, Masayoshi

193pp.1 - 17 , 2015-04-02 , Institute of Comparative Economic Studies, Hosei University
Given the ongoing efforts of Japanese companies to diversify and globalize their operations and launch multiple-unit corporate business groups, these firms are finding it increasingly important to govern their subsidiaries properly. This paper analyzes the current state of the formation of corporate business groups. The effect of the parent company’s granting of stock options to subsidiaries’ executives is also empirically examined using the technique of propensity score matching. The empirical results show that the granting of stock options by the parent company to these executives had a positive impact on the business group’s performance. This result suggests that in order to improve parent-subsidiary managerial relations, it is important to provide subsidiaries with incentives that will encourage them to improve the business performance of the group as a whole.

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