Private equity financings in Japan and corporate grouping (keiretsu)

Abstract

This study offers evidence concerning the private issues of seasoned equity by examining the stock market reaction to the announcement of these issues in Japan. Similar to results in the U.S., the announcement of the private placement of equity by Japanese firms is significantly positive, nearly five percent on average. We examine a sample of firms that purchase the private equity issues and find that the average market reaction of their stock is negative at the announcement of the purchase. Finally, we examine two subsets of the sample: those firms that belong to a keiretsu, an industrial grouping, and those that do not belong to an identifiable group. Our evidence is consistent with the notion that the keiretsu form of industrial organization is beneficial to the shareholders of member firms.