The Japanese Financial System: its Solidity and Vulnerability

Abstract

Many enterprises in the modern capitalistic economy are joint stock companies. There can be considered to be four types of these. The first kind is a company consisting only on shareholders who have no intention whatsoever of letting go of the shares that they possess. Let us call that kind of shareholder a lifetime shareholder or a stable shareholder. Since at the time the enterprise was established only those who approved of its establishment and operation invested in it and became shareholders, they were all stable shareholders who anticipated keeping their shares throughout their lives. Let us call this kind of company a ‘type A’ enterprise. When such an enterprise wishes to increase its capital, it decides on the total amount it wants to increase, and allocates this amount between the stable shareholders. Some of these shareholders may be unable to go along with this increased allocation, and in this case the amount of their shareholding will not increase. This does not mean a proportional increase in the number of shares held by the remaining shareholders. However, even after the increase in capital all the shares still remain completely in the hands of stable shareholders. On some occasions, however, it may be that one of these shareholders is unable to continue as a stable shareholder. In that case there arises the problem of what to do with the shares that are being renounced. When the shares can all be taken up by the existing stable shareholders, the enterprise remains of the A type. Where they cannot be so absorbed, part or all of the shares which are being disposed of end up in the hands of those other than the current stable shareholders. These new shareholders may not necessarily be concerned with the operation of the enterprise over the long term. They may well soon sell their shares to someone else, cutting their connection with the enterprise. They are likely to be shareholders who will resell their shares if they think that switching their shareholding to another enterprise is more profitable than staying with the same one, that is, they are unstable shareholders.