Review of Quantitative Finance and Accounting, 23: 79–98, 2004
2004 Kluwer Academic Publishers. Manufactured in The Netherlands.
Japanese Corporate Groupings (Keiretsu) and the
Characteristics of Analysts’ Forecasts
EDWARD B. DOUTHETT, JR.
School of Management, George Mason University
Graduate School of Management, Korea Advanced Institute of Science and Technology,
207-43 Cheongryangri-Dong Dongdaimoon-Gu, Seoul, 130-722, Korea
College of Business Administration, University of Nebraska at Omaha, RH 408K, 6001 Dodge St., Omaha,
NE 68182-0048 Tel.: (402) 554-2821
Abstract. This study examines differences in the characteristics of analysts’ forecasts of earnings for keiretsu
and non-keiretsu ﬁrms in Japan. Japanese industrial organization is characterized by enterprise groupings, keiretsu,
composed of ﬁrms in different industries, but interrelated through cross-holdings of ownership. The strong in-
terrelations of the Japanese keiretsu have been shown to increase the monitoring of managerial performance. An
alternative view of keiretsu stewardship suggests the exclusionary environment within a keiretsu creates an infor-
mation monopoly, resulting in greater information asymmetry between inside and outside constituents. These two
views provide opposing predictions on how keiretsu groupings potentially affect the characteristics of earnings
forecasts made by analysts: increased monitoring will improve the forecast characteristics of earnings, while the
opposite is true under an information monopoly.
Our results suggest that forecast accuracy (dispersion) is higher (lower) for keiretsu ﬁrms than non-keiretsu
ﬁrms, supporting a monitoring role by keiretsu. The results also show that keiretsu ﬁrms’ forecast characteristics
are related to the strength of the keiretsu relationship, providing further evidence that it is indeed the keiretsu
relationship that increases the monitoring of management, which ultimately improves the accuracy and dispersion
of analysts’ forecast.
Keywords: analyst earnings forecast, Japanese corporate ownership, keiretsu, monitoring
JEL Classiﬁcation: M41, N25, G14, G15
We examine the association between Japanese corporate ownership groupings (keiretsu)
and the accuracy and dispersion of ﬁnancial analysts’ forecasts (i.e., the characteristics of
analysts’ forecasts). Japanese ownership structure is much different from that in the U.S.
We appreciate the comments from participants at the 2002 Korean Accounting Association Conference, the 2002
European Applied Business Research Conference, and 2003 International Accounting Section Midyear Meeting
of the American Accounting Association.