Germany, Japan, and the United States represent the world’s three largest economies. Despite their common economic success, German, Japanese and US companies operate within rather unique financial systems. Germany’s financial system is dominated by large universal banks. Markets for corporate stocks and corporate bonds are not well developed. Corporate ownership is highly concentrated. Nonfinancial enterprises are the most important group of shareholders.
Banks play a dominant role within the Japanese financial system. Although they are not allowed to acquire more than 5 percent of a corporation’s outstanding shares, Japanese banks own more than one-fifth of all Japanese stocks. They are the center of keiretsu organizations—large financial networks based on cross shareholdings, short-term credits, long-term commitments, director interlinkages and inter-firm trading.
The US capital market is well developed. Bank intermediation is less important than in Germany and Japan. Corporate ownership is highly fragmented. Private households constitute the largest group of shareholders, owning about three-quarters of all US stocks. Despite the strength of US stock and bond markets, multidivisional organization has become popular in the United States. Like their German and Japanese counterparts, many US corporations have created internal capital markets by adopting a multidivisional structure. Contrary to German and Japanese multidivisional corporations, however, US conglomerates became the target of leveraged buyouts. During the 1980s a large number of US corporations were restructured as a result of hostile takeovers.
These differences raise various questions. For example, why are holding companies popular in Germany? Why did financial keiretsu develop in Japan, but not in Germany and the United States? Why is bank intermediation more dominant in Germany and Japan than in