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The Canadian Keiretsu

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  • F.H. Buckley
Abstract
This article describes the Canadian keiretsu, in which a main Chartered Bank dominates an interlocking group of corporate clients, investment dealers, trust companies, and professional advisors. Such a network facilitates information‐sharing and monitoring among group members, while also reducing the agency costs of banker misbehavior. Most major Canadian firms are members of a keiretsu, and stock ownership of Canadian corporations is far more concentrated than ownership of U.S. companies. Given their many similarities of history, law, and geography, Canada and the United States should have ended up with similar corporate ownership and governance structures. But they did not, and the difference was Canada's less restrictive banking and bankruptcy laws, which in turn can be traced to Canada's distinctly non‐populist historical experience. The Canadian keiretsu arose primarily for two reasons: (1) the larger concentration of commercial banking (the six largest Canadian banks today account for 98% of the industry's assets) allowed by Canadian law; and (2) the greater powers of Canadian secured lenders in the event of default. Unlike a U.S. Chapter 11 filing, in a Canadian bankruptcy the lender's right to assume control of the assets was not stayed until quite recently. And, even with the recent change in Canadian bankruptcy law, Canadian secured lenders have much stronger protection of their claims in bankruptcy than their U.S. counterparts in Chapter 11.

Suggested Citation

  • F.H. Buckley, 1997. "The Canadian Keiretsu," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 46-57, January.
    • Handle: RePEc:bla:jacrfn:v:9:y:1997:i:4:p:46-57
    DOI: 10.1111/j.1745-6622.1997.tb00623.x
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    Cited by:

    1. Jorgensen, Bjorn N. & Morley, Julia, 2017. "Discussion of “are related party transactions red flags?”," LSE Research Online Documents on Economics 80801, London School of Economics and Political Science, LSE Library.
    2. King, Michael R. & Santor, Eric, 2008. "Family values: Ownership structure, performance and capital structure of Canadian firms," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2423-2432, November.
    3. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    4. Dutta, Shantanu & Fuksa, Michel & Macaulay, Ken, 2019. "Determinants of MD&A sentiment in Canada," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 130-148.
    5. Edeh, Jude Ndubuisi & Obodoechi, Divine Ndubuisi & Ramos-Hidalgo, Encarnación, 2020. "Effects of innovation strategies on export performance: New empirical evidence from developing market firms," Technological Forecasting and Social Change, Elsevier, vol. 158(C).
    6. Vedres, Balázs, 2000. "A tulajdonosi hálózatok felbomlása. A rekombináns tulajdonformák szerepe és a hazai nagyvállalatok tulajdonszerkezetének jellemzői a kilencvenes évek végén [The break-up of the ownership networks. ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 680-699.
    7. Marie Dutordoir & Evangelos Vagenas‐Nanos & Patrick Verwijmeren & Betty Wu, 2021. "A rundown of merger target run‐ups," Financial Management, Financial Management Association International, vol. 50(2), pages 487-518, June.

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