Abstract: Exploration Needs Stable Shareholders? Ownership Structure and R&D Strategy: The Case of the Electronics, Steel and Iron, and Pharmaceutical Industries in Japan

Yusuke Hoshino


Does exploration need stable shareholders? This study aims to explore how the unbundling of interlocking cross-shareholdings has influenced resource allocation in R&D. During the interwar periods, Japanese firms developed interlocking business relations and cross-shareholdings. These became one of the bases of the informal business groups called keiretsu. It has been argued that this enabled firms to survive with a lower level of profitability and to develop long-term and long-range planning, compared with that of U.S. firms, by helping to insulate individual firms from stock market fluctuations and takeover attempts. However, Japanese firms have begun to unwind the level of cross-shareholdings since the 1990s in response to external conditions, such as a severe decline in share prices and long-term recessions. How did this change in ownership structure influence the R&D of the firms? R&D is inherently highly uncertain and costly. Thus, it certainly requires long-range planning. Therefore, the changes in ownership structure must have influenced R&D strategy. By exploring three industries, the electronics, steel and iron, and pharmaceutical industries, this study aims to scrutinize how the change in ownership structure changed firms' R&D strategy.