Is managerial equity ownership an alternative governance mechanism for Japanese firms?

Due to the existence of keiretsu networks and influential bank shareholders, managerial-ownership is not viewed as important in Japan. With the recent decline in the power and influence of Japanese banks, this view might now be obsolete. We present evidence that managerial ownership has become an alternative mechanism for corporate governance in Japan. Using 1993 and 1996 data, we find that firms with significant managerial equity ownership are typically non-keiretsu firms and hold less bank debt. Further, these same manager-owned firms exhibit more control potential and make more discretionary expenditures than do other firms. Overall, our findings suggest that managerial equity ownership is a substitute governance mechanism for monitoring by banks and keiretsu.