Asia Pacific Journal of Management

, Volume 23, Issue 4, pp 453–466 | Cite as

Japanese horizontal keiretsu and the performance implications of membership

  • Takehiko IsobeEmail author
  • Shige Makino
  • Anthony Goerzen


Our study investigates the effect of Japanese horizontal keiretsu group membership on firm risk and return. Like prior studies, our results show that horizontal keiretsu membership has a negative effect on firm profitability. However, we find that horizontal keiretsu networks are likely to increase the gap between targeted and realized returns, which we call the outcome–aspiration gap. Moreover, in contrast to prior studies, our results indicate that keiretsu membership does not enable member firms to reduce risks by smoothing profitability. Instead, our findings provide evidence that is counter to the conventional notion that Japanese horizontal keiretsu allows their member firms to trade off profits for reduced risk.


Horizontal keiretsu Performance Risk sharing 


  1. Aoki, M. 1990. Toward an economic model of the Japanese firm. Journal of Economic Literature, 28(1): 1–27.Google Scholar
  2. Attaran, M., & Zwick, M. 1987. Entropy and other measures of industrial diversification. Quarterly Journal of Business and Economics, 26(4): 17–34.Google Scholar
  3. Bourgeois, L., & Singh, J. 1983. Organizational slack and political behavior among top management teams. Academy of Management Proceedings: 43–47.Google Scholar
  4. Bromiley, P. 1991. Testing a causal model of corporate risk taking and performance. Academy of Management Journal, 34(1): 37–59.CrossRefGoogle Scholar
  5. Burt, R. 1992. Structural holes: The social structure of competition. Cambridge, MA: Harvard University Press.Google Scholar
  6. Carney, M. 2005. Globalization and the renewal of Asian business networks. Asia Pacific Journal of Management, 22(4): 337–354.CrossRefGoogle Scholar
  7. Carney, M., & Gedajlovic, E. 2003. Strategic innovation and the administrative heritage of East Asian family business groups. Asia Pacific Journal of Management, 20(1): 5–26.CrossRefGoogle Scholar
  8. Christensen, H., & Montgomery, C. 1981. Corporate economic performance: Diversification strategy versus market structure. Strategic Management Journal, 2(4): 327–344.CrossRefGoogle Scholar
  9. Chu, W. 2001. Contingency organizations and shared values: Multiple logics in managing diversification. Asia Pacific Journal of Management, 18(1): 83–99.CrossRefGoogle Scholar
  10. Coleman, J. 1990. Foundations of social theory. Cambridge, MA: BelknapGoogle Scholar
  11. Dalton, D., Daily, C., Ellstrand, A., & Johnson, J. 1998. Meta-analytic reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19(3): 269–290.CrossRefGoogle Scholar
  12. Delios, A., & Beamish, P. 1999. Geographic scope, product diversification, and the corporate performance of Japanese firms. Strategic Management Journal, 20(8): 711–727.CrossRefGoogle Scholar
  13. Dow, S., & McGuire, J. 1999. The sources and advantages of Japanese industrial organization. Asia Pacific Journal of Management, 16(1): 47–74.CrossRefGoogle Scholar
  14. Dyer, J., & Singh, H. 1998. The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4): 660–679.CrossRefGoogle Scholar
  15. Flath, D. 1996. The keiretsu puzzle. Journal of the Japanese and International Economies, 10(2): 101–121.CrossRefGoogle Scholar
  16. Gerlach, M. 1992. Alliance capitalism: The social organization of Japanese business. Los Angeles: University of California Press.Google Scholar
  17. Granovetter, M. 1994. Business groups. In Smelser, N., & Swedberg, R. (Eds.). The handbook of economic sociology: 453–475. Princeton, NJ: Princeton University Press.Google Scholar
  18. Granovetter, M. 1995. Coase revisited: Business groups in the modern economy. Industrial and Corporate Change, 4(1): 93–130.CrossRefGoogle Scholar
  19. Greve, H. 2004. A behavioral theory of R&D expenditures and innovations: Evidence from shipbuilding. Academy of Management Journal, 46(6): 685–702.Google Scholar
  20. Gulati, R. 1998. Alliances and networks. Strategic Management Journal, 19(4): 293–317.CrossRefGoogle Scholar
  21. Gulati, R., & Singh, H. 1998. The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative Science Quarterly, 43(4): 781–815.CrossRefGoogle Scholar
  22. Hargadon, A., & Sutton, R. 1997. Technology brokering and innovation in a product development firm. Administrative Science Quarterly, 42(4): 716–749.CrossRefGoogle Scholar
  23. Hoshi, T., Kashyap, A., & Scharfstein, D. 1990. The role of banks in reducing the costs of financial distress in Japan. Journal of Financial Economics, 27(1): 67–88.CrossRefGoogle Scholar
  24. Hoshi, T., Kashyap, A., & Scharfstein, D. 1991. Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. Quarterly Journal of Economics, 106(1): 33–60.CrossRefGoogle Scholar
  25. Japan Fair Trade Commission. 2001. State of corporate groups in Japan: The seventh survey report. 12-01-001.264-00-A. Washington, District of Columbia: The Fair Trade Commission.Google Scholar
  26. Khanna, T., & Palepu, K. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4): 41–49.Google Scholar
  27. Khanna, T., & Rivkin, J. 2001. Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1): 45–74.CrossRefGoogle Scholar
  28. Khanna, T., & Yafeh, Y. 2005. Business groups and risk sharing around the world. Journal of Business, 78(1): 301–340.CrossRefGoogle Scholar
  29. Kim, H., Hoskisson, R., & Tihanyi, L. 2004. The evolution and restructuring of diversified business groups in emerging markets: The lessons from chaebols in Korea. Asia Pacific Journal of Management, 21(1–2): 25–48.CrossRefGoogle Scholar
  30. Levitt, B., & March, J. 1988. Organizational learning. Annual Review of Sociology, 14: 319–340.CrossRefGoogle Scholar
  31. Lincoln, J., Gerlach, M., & Ahmadjian, C. 1996. Keiretsu networks and corporate performance in Japan. American Sociological Review, 61(1): 67–88.CrossRefGoogle Scholar
  32. Lubatkin, M., & Chatterjee, S. 1994. Extending modern portfolio theory into the domain of corporate diversification: Does it apply?. Academy of Management Journal, 37(1): 109–136.CrossRefGoogle Scholar
  33. Miller, K., & Reuer, J. 1996. Measuring organizational downside risk. Strategic Management Journal, 17(9): 671–691.CrossRefGoogle Scholar
  34. Miwa, Y., & Ramseyer, J. 2002. The fable of the keiretsu. Journal of Economics and Management Strategy, 11(2): 169–224.CrossRefGoogle Scholar
  35. Nahapiet, J., & Ghoshal, S. 1998. Social capital, intellectual capital, and the organizational advantage. Academy of Management Review, 23(2): 242–266.CrossRefGoogle Scholar
  36. Nakatani, I. 1984. The economic role of financial corporate grouping. In Aoki, M. (Ed.). The economic analysis of the Japanese firm: 227–258. Amsterdam, The Netherlands: North Holland.Google Scholar
  37. Palepu, K. 1985. Diversification strategy, profit performance, and the entropy measure of diversification. Strategic Management Journal, 6(3): 239–255.CrossRefGoogle Scholar
  38. Peng, M. 2003. Institutional transitions and strategic choices. Academy of Management Review, 28(2): 275–286.CrossRefGoogle Scholar
  39. Ramanujam, V., & Varadarajan, P. 1989. Research on corporate diversification: A synthesis. Strategic Management Journal, 10(6): 523–551.CrossRefGoogle Scholar
  40. Sheard, P. 1989. The main bank system and corporate monitoring and control in Japan. Journal of Economic Behavior and Organization, 11(3): 399–422.CrossRefGoogle Scholar
  41. Sitkin, S., & Pablo, A. 1992. Reconceptualizing the determinants of risk behavior. Academy of Management Review, 17(1): 9–39.CrossRefGoogle Scholar
  42. Sutton, R., & Hargadon, A. 1996. Brainstorming groups in context: Effectiveness in a product design firm. Administrative Science Quarterly, 41(4): 685–718.CrossRefGoogle Scholar
  43. Tabeta, N. 1998. The kigyo keiretsu organization and opportunism in the Japanese automobile manufacturing industry. Asia Pacific Journal of Management, 15(1): 1–18.CrossRefGoogle Scholar
  44. Tabeta, N., & Rahman, S. 1999. Risk sharing mechanism in Japan’s auto industry: The keiretsu versus independent parts suppliers. Asia Pacific Journal of Management, 16(3): 311–330.CrossRefGoogle Scholar
  45. Uzzi, B. 1996. The sources and consequences of embeddedness for the economic performance of organizations: The network effect. American Sociological Review, 61(4): 674–699.CrossRefGoogle Scholar
  46. Wang, H., Huang, P., & Bansal, P. 2005. What determined success during the Asian economic crisis?: The importance of experiential knowledge and group affiliation. Asia Pacific Journal of Management, 22(1): 89–106.CrossRefGoogle Scholar
  47. Weinstein, D., & Yafeh, Y. 1995. Japan’s corporate groups: Collusion or competitive? An empirical investigation of keiretsu behavior. Journal of Industrial Economics, 43(4): 359–376.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC 2006

Authors and Affiliations

  1. 1.Research Institute for Economics and Business AdministrationKobe UniversityKobeJapan
  2. 2.Department of ManagementThe Chinese University of Hong KongShatin, N.T.Hong Kong
  3. 3.University of VictoriaVictoriaCanada

Personalised recommendations