Faculty Scholarship 1994 - Present

A Comparison of the Financial Characteristics of Japanese Keiretsu and Non-Keiretsu Firms

The Japanese financial keiretsu system has recieved considerable attention in the U.S. business literature. A number of studies have investigated various aspects of the financial keiretsu practice in Japan and the impact of this system on the financial characteristics of Japanese firms. However, there are no studies that compare the overall financial characteristics of the keiretsu-affiliated firms and the independent firms. In this study we attempt such a comparision by using the parametric and non-parametric ANOVA (analysis of variance) techniques and a sample of 224 Japanese firms from 13 manufacturing industries. Due to their ability to borrow from the main bank of the keiretsu with liberal terms, the keiretsu-affiliated firms appear to have significantly higher debt ratios and lower liquidity ratios compared with the independent firms. The keiretsu-affiliated firms are generally larger than the independent firms with more institutional ownership. Although the independent firms ahve significantly higher operating profit margin and return on asset ratios, the return on equity ratios of the two groups of firms are not significantly different. There are also considerable similarities between the two groups of firms in terms of turnover ratios, growth ratios, and market ratios.