to the market between 1967 and 1971, the keiretsu banks and other group companies bought them to avoid them falling into the wrong hands. This fear of foreign take-overs led to a movement to create stable shareholding. Beginning with car manufacturers, it spread relatively quickly among horizontal keiretsu and then began in vertical keiretsu as manufacturers sought to protect their suppliers from take-over, binding them ever more closely. Toyota, for instance, managed to stabilise 70% of its total shares by selling them first to the banks and insurance companies of the Mitsui keiretsu, then to other group members and finally to parts of its own vertical keiretsu. In doing so, Toyota inevitably declared its affiliation to the Mitsui keiretsu. However, few companies have stabilised such a large proportion of their shares - more commonly stabilised cross-shareholdings are in the 15-30% range. By the mid 1970s these cross-shareholding became institutionalised and that has remained the pattern ever since. Because of capital gains tax, there is a strong disincentive to sell assets that, in some case, have risen by 300-400%.Apart from achieving their aim - foreign shareholding of Japanese shares peaked at 6.3% in 1983 - there were other advantages stemming from this system. Firstly, it cemented relations, acting as part of the "glue" that holds the keiretsu together. Secondly, by reducing the shares in circulation, it tended to push share prices up, thus improving everyone's ability to borrow money against these secure, rising assets. Thirdly, and most importantly, Miya*censored*a and Russell estimate that around 25% of shares in Japanese companies are currently held as keiretsu cross-holdings, with a further 50% in the hands of banks, trust companies and insurance companies, most of whom have keiretsu connections. This has given management in leading Japanese companies a freedom to act with a longer-term perspective than most Western manageme...
