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Hidetaka Aoki ORCID logo


This paper analyzes the effects of firm performance and governance factors on the decrease in diversification of Japanese firms in the 1990s. We focus on the cases of the decrease in diversification, because many previous studies proved that diversification caused firm value discount. Adjusting an excessive unrelated diversification would be an important topic, because the problems of low synergy between business units, inefficiency in management and so on were more serious in this type of diversification. The findings of this study are as follows. In the first half of the 1990s, immediately after the collapse of bubble economy, lower firm performance and main bank relationship encouraged firms to decrease the level of diversification of their businesses. On the other hand, in the latter half of the 1990s when the decrease in diversification itself was activated, higher performing non-manufacturing firms and manufacturing firms with lower profitability but facing higher growth in their main business tried to decrease diversification in order to strengthen the competitiveness in main businesses. Also, this kind of decrease in diversification was supported by the governance characteristics such as insider majority smaller boards of directors and the pressure from capital market.

Keywords: Decrease in Diversification, Corporate Governance, Business Portfolio Restructuring, Selection and Concentration, Diversification, Capital Market

How to cite this paper: Aoki, H.(2009). The decrease in diversification and corporate governance: evidence from Japanese firms. Corporate Ownership & Control, 6(4), 28-39.