Visibility Versus Complexity in Business Groups: Evidence from Japanese Keiretsu

Posted: 25 Apr 2000

See all articles by Kathryn L. Dewenter

Kathryn L. Dewenter

University of Washington - Michael G. Foster School of Business

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Richard H. Pettway

University of Missouri at Columbia - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

This paper examines the potential for external conflicts in large, diversified business groups. On one hand, these groups are highly visible, facilitating the detection of opportunistic actions. Accordingly, reputation concerns should effectively constrain group behavior. On the other hand, these groups are highly complex, making it difficult for outsiders to unveil group strategies from among a myriad of transactions. This complexity should limit the power of reputation concerns to constrain actions. We use data on IPO initial returns to evaluate the trade-off between visibility and complexity. The evidence suggests that complexity dominates visibility, providing scope for opportunistic behavior against outside investors.

JEL Classification: G34

Suggested Citation

Dewenter, Kathryn L. and Novaes, Walter and Pettway, Richard H., Visibility Versus Complexity in Business Groups: Evidence from Japanese Keiretsu. Available at SSRN: https://ssrn.com/abstract=219831

Kathryn L. Dewenter (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Dept. of Finance & Business Economics
Seattle, WA 98195-3200
United States
206-685-7893 (Phone)
206-685-9392 (Fax)

Walter Novaes

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Richard H. Pettway

University of Missouri at Columbia - Department of Finance ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
993
PlumX Metrics