The Value Information of Financing Decisions and Corporate Governance during and after the Japanese Deregulation

Using Fama and French's (1998) framework, we investigate how financing decisions and corporate governance affect firm value, during and after the Japanese deregulation of 1974-97. We find that the value information is especially strong in the case of adverse keiretsu effects on bank financing in the 1980s, suggesting that keiretsu hands-on corporate governance and finance caused more costs than benefits. There is also strong evidence that Japan's deregulation changed the value information of corporate financing decisions and made it more compatible with a market-oriented financial system. This presaged the waning of traditional keiretsu corporate governance in Japan.