Shares in automakers Nissan, Mitsubishi and Renault fell sharply Tuesday after the arrest of executive Carlos Ghosn on allegations of "significant acts" of financial misconduct.
All three firms are considering replacing him as chairman.
Nissan, one of the world's biggest automakers, said Ghosn falsified reports about his compensation "over many years" and that its internal investigation also found he had used company assets for personal purposes.
Japanese media reported Monday that Ghosn is being questioned by Tokyo prosecutors, suspected of failing to report millions of dollars in income.
Nissan said that based on a report by a whistleblower, it conducted an internal investigation of Ghosn and Representative Director Greg Kelly and shared its findings with public prosecutors. The company said both men had been arrested.
The automaker said its investigation showed that Ghosn had underreported his income to the Tokyo Stock Exchange by more than $40 million over five years.
The Ashai newspaper reported that prosecutors have raided Nissan's headquarters in Yokohama.
The Brazilian-born Ghosn, who is of Lebanese descent and a French citizen, was the rare foreign top executive in Japan.
Ghosn was sent to Nissan in the late 1990s by Renault SA of France, after it bought a controlling stake of Nissan. He is credited with rescuing Nissan from the brink of bankruptcy.
In 2016, Ghosn also took control of Mitsubishi, after Nissan bought a one-third stake in the company, following Mitsubishi's mileage-cheating scandal.
Together, the three automakers comprise the biggest global carmaking alliance, manufacturing one of every nine cars sold around the world. The three companies employ more than 470,000 people in nearly 200 countries.
Before Ghosn's arrest, Satoru Takada, an analyst at TIW, a Tokyo-based research and consulting firm, said his detention would "rock the Renault-Nissan-Mitsubishi alliance as he is the keystone of the alliance."