JP Corporate Flashcards
cost of equity
the rate of return an investor requires from an investment for it to be considered worth the risk
hurdle rate
the minimum rate of return a project must achieve to be accepted. riskier projects have higher hurdle rates
payback period
the number of years it takes to recover the investment in a business
technique in capital budgeting in JP
Japanese firms have a “payback syndrome” or use payback method usually. They don’t usually use NPV and IRR.
keiretsu 系列
a set of companies with interlocking business relationships where each own a small portion of each other’s shares.
main bank system
the largest provider of loans to a company is linked in many ways. monitoring the firm, a major shareholder, sends employees as directors, tries to rescue it
How did the new economic environment change JP companies?
It led more and more banks & companies away from 系率 arrangements.
Law changes gave more managerial flexibility and broader shareholder powers, hence many changes in corporate governance.
How was corporate strategy during post-war?
They were directed towards stability, and longevity. To match more aggressive investments.
Profits were not the main concern. It’s about the higher certainty of survival.
Post-war what was the threat to companies?
Not competition. It’s the exposure to risk/failure. And so they get stable relationships with banks & partners for protection (系列)
What can main banks do?
They hold up to 5% of ownership. They provide easy access to funds. They can interfere with the mgt in exchange for exposure.
In the 1990s, what changed the post-war schemes?
- Change in industrial policy
- 1997 crisis proved that regulation was inadequate.
Post-1990s, how did banks change?
Being a main bank was not sufficient, and they sought for broader ranger of customers.
New law required more bank stability, so banks sold off their cross-held shares.
