The Determinants in the Timing of Downsizing in Large Japanese Firms

The purpose of this paper is to empirically analyze the factors that determine the timing of downsizing, focusing on which periods of positive profits or losses it is implemented in. We shed light on the factors concerning corporate finance, ownership structure and employer-employee attachments by employing a unique dataset. We reveal that the timing of downsizing depends on firms’ embeddeness in the traditional Japanese style stakeholder system. Our results show that Japan’s traditional firms with close relationship with stakeholders are likely to maintain employment, however, the increase in foreign ownership might have made it difficult and changed life-time employment system. JEL Classification Codes: G34, J23, M51