en underdeveloped in Japan, the bank also acts as a credit monitor, using its knowledge of group members' performance to assess and contain risk. Since other group members have cross-shareholdings in each other and provide each other with loans, the bank oversees these flows and provides advice and guidance. Because it is so familiar with its members' businesses, it can also act as a venture capitalist, supporting R&D and important technical developments. The authors quote Sumitomo Bank's support of investments in semiconductor technology made by Nippon Electric Company (NEC). NEC "outspent its rivals in semiconductor plants by roughly two to one over a six year period in the late 1970s" but had to rely on external finance for 85% of its total capital during the period. Not only did the bank provide assistance, its recommendations meant that other Sumitomo keiretsu companies provided about one third of all NEC's loans. Finally, the group bank acts as a highly skilled company doctor. If trouble is looming at one of its customers, it has its own well-informed team of executives ready to replace the existing management, provide high levels of management expertise, and steer the company round - one of the reasons why very few large companies in Japan fail.Cross-shareholding After the Second World War, some 69% of shares in Japanese companies were in private hands. By 1989, however, banks held 42.3% of Japanese shares and corporate holdings had risen to 24.8%, a total of over 67% in non-private hands. While cross-shareholding had started soon after 1952, it was the Japanese Stock Market crash in 1964 that provided the impetus. As prices fell, the Japanese government froze the shares being off-loaded onto the market to avoid foreign investors buying into leading Japanese companies. These shares accounted for over 5% of all shares issued by companies in the First Section of the stock exchange listing. When they were gradually released back on...
