The Japanese employment system has often been characterized as one that favors long-term, stable employment. It is said that institutional complementarity has existed between this system and the Japanese relational fi nancial system, in which the fi nancial transactions mainly comprise loans by banks. In recent years, the percentage of foreign shareholders and that of stable shareholders such as banks or nonfi nancial fi rms has increased, whereas the number of employees in the listed Japanese fi rms has decreased. It is possible that changes in the shareholder structure affected the employment system. This study analyzes the effects of foreign shareholders on the number of employees in listed Japanese fi rms from 1997 to 2007. A small effect of foreign shareholders was found among all fi rms examined. This fi nding suggests that a decrease in employees during this period is unrelated to the percentage of foreign shareholders.