Falling Down Together? Japanese Keiretsu and the Performance Implications of Affiliation

Our study investigates the effect of Japanese keiretsu group membership on firm risk and return. Like prior studies, our results show that keiretsu membership has a negative effect on firm profitability. In contrast to prior studies, however, we find that most of our risk measures are positively associated with keiretsu membership; this indicates that keiretsu networks do not enable keiretsu member firms to reduce risks by smoothing their profitability or shielding them from financial hardship. Our findings provide evidence that is counter to the conventional notion that Japanese keiretsu allow their member firms to mitigate risk. Our evidence suggests instead that keiretsu tend to provide high-risk and low-return environments to their affiliates.