Portfolio Management and Profitability of Mitsubishi Zaibatsu during the War: 1935-1944

Abstract

This paper explores the change in the security portfolio of the holding company of Mitsubishi Zaibatsu (Mitsubishi Holdings) and its implication on the profitability of that company, during the wartime. In this period, while Mitsubishi Holdings rapidly expanded the total investment in securities, it substantially changed the portfolio, increasing investment in the companies in the munitions industry. This portfolio management policy was not successful in terms of profitability. We decomposed the profitability decline into that due to the declines in the returns on the individual securities which had existed in the portfolio and that due to the change in the portfolio. We found that whereas the former factor was larger, the portfolio factor was also substantial. This result suggests that the asset management system of Mitsubishi Holdings came not to work well, which in turn would be due to government intervention and deterioration of the governance within Mitsubishi Zaibatsu.