The Emergence of Portfolio Restructuring in Japan

Zusammenfassung

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The authors examine the role of stakeholders as an influence in the practice of portfolio restructuring. They contend that with the presence and creation of new legal arrangements and regulations, portfolio restructuring achieved widespread usage, but only when the initiatives were consistent with the interests of the most powerful social actors in a firm. Building on a stakeholder power approach to corporate governance, they examine whether the interests of relational banks, managers, and business groups were consistent with the practices of portfolio restructuring they observed in Japanese firms in the 1998 to 2005 period. Regressions using data on 174 Japanese machinery firms lend support to predictions that portfolio restructuring increases in frequency with the extent to which business groups' strategies are facilitated and decreases with the degree to which banks' interests are protected. The association between the frequency of portfolio restructuring and managerial interests depends on the level of managerial ownership.

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Auszug

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The Emergence of Portfolio Restructuring in Japan

Introduction

Corporate restructuring is an action that alters the structure, composition or orientation of a firm in response to changing external environments or altered internal organizational conditions (Bowman/Singh 1993, Kang/Shivdasani 1997). By realigning a firm's business and resources with its environment, corporate restructuring aims to improve returns from the deployment of the firm's assets.

A firm's managers can implement a variety of restructuring activities including portfolio, financial, and organizational restmcturing (Gibbs 1993). In this study, we focus on an important subset of portfolio restructuring activities: namely, asset divesture and asset expansion restructuring. Different forms of restructuring interact with each other. For instance, portfolio restructuring can bring in organizational and financial restructuring, such as executive turnover, layoff, costly financial charges, and negative public perception (Hoskisson/Hitt 1994).

Even though restructuring activities can be prominent ones in a firm, a number of scholars have identified that weaknesses in ownership and governance systems can be key obstacles to restructuring (Bethel/Liebeskind 1993, Hanson/Song 2003). The governance literature emphasizes that with properly defined agency relationships, managers would implement a strategy that is in the best interest of shareholders. However, in economies where the agency relationships are not clearly defined, for example, Japan and Germany, the coordination of stakeholders becomes a major obstacle to the implementation of shareholder wealth maximizing strategies (Buck/Filatochev/Wright 1998). When the influences of stakeholders over corporate decisions become stronger relative to that of the shareholders, the initiation and implementation of corporate restructuring requires a complex cooperation among stakeholders. Principal-agent models hence become of less use to explain such behavior. Furthermore, the mechanisms of coordination are particulary important when firms are faced with radical environmental uncertainties or operational risks. If there is substantial uncertainty about the process and consequence of a strategic action, policymakers and managers can easily become hesitant to push for such a change in action.

Existing studies of portfolio restracturing have focused on the diversification behaviour of the firm, as pioneered by Wernerfelt and Montgomery (1988). Comment and Jarrell (1995) argue that a focusing strategy is consistent with the maximization of shareholder valu...

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