Most of the Keiretsu inter-firms create a strong relationship among its board members, personnel flows, and the sharing of mutual business assistance. For this reason, individual shareholders are left with little voice to control corporate activities.
The Japanese banks are considered to be one of the largest shareholders and creditors of keiretsu as well as non-keiretsu corporations. These banks are among the most aggressive players in the Japanese corporate governance during the post-WWII.1, 2 Right after the post-WWII, the Japanese banks had no choice but to undertake a huge-risk in exchange for much higher return projects.3
This study will focus on providing evidence that the so-called Keiretsu inter-firm structure is less competitive in times of financial crisis as well as with today’s practice of globalization. In order to provide the readers with a better understanding about the Keiretsu inter-firm structure, the author will discuss Keiretsu inter-firm structure as a relationship-based system, the competitive advantages of Keiretsu inter-firm structure between the post-WWII up to the late 1980s, and the decline of Japan’s economy
The Japanese Keiretsu inter-firm structure is a relationship-based system that was developed in order to enable a company to return the borrowed money back to its financiers through the use of authority or power. Keiretsu inter-firm structure is a system that creates barriers to entry by restricting the access to transparency as well as the information asymmetries. The lack of transparency and information asymmetry contributes to a fewer market signal when it comes to the prices of Keiretsu products and services. It is only normal for the use of relationship-based systems to become successful even without the use of any legal protections.
For a Keiretsu inter-firm structure to be a success, it is essential for the business owners to focus on monitoring and .analyzing Japan’s economic performance.