When Do Owners Make a Difference? A Comparison of Market-centred versus Bank-centred Governance1

Our analysis examines whether or not there exists a differential impact of ownership between two distinct governance regimes: market-centered (US firms) and bank-centered (Japanese firms). We find that significant owners in the US are often quite effective in carrying out the monitoring function, although the potential to consume private benefits increases as ownership stakes rise. In Japan our evidence is consistent with entrenchment of powerful ownership blocks, although some monitoring also takes place. Moreover, such entrenchment is most pronounced among keiretsu members in contrast to independent Japanese firms. Our results also indicate that the propensity to consume private benefits is somewhat accelerated in poorer economic times especially for