Nissan and Mitsubishi shares have slumped in early Tokyo trade, after the arrest of chairman Carlos Ghosn.
He is accused of under-reporting his income by 5 billion yen ($44.4 million) over five years, prosecutors said. He is also said to have used company assets for personal purposes.
Mr Ghosn heads up the Japanese-French alliance Renault-Nissan-Mitsubishi, the BBC reports.
Both Nissan and Mitsubishi have said they are preparing to remove him from his posts.
Shares in Nissan were down about 4 per cent by midday on Tuesday, Mitsubishi was also down more than 7 per cent. Renault's shares lost more than than 8 per cent in Europe.
In a late night press conference on Monday, Nissan said an internal investigation prompted by a whistleblower had revealed "significant acts of misconduct".
Nissan Chief Executive Hiroto Saikawa said "too much authority was given to one person in terms of governance," speaking at the Yokohama headquarters of the firm.
"I have to say that this is a dark side of the Ghosn era which lasted for a long time," Mr Hiroto said adding he was still thinking through whether Mr Ghosn was "a charismatic figure or a tyrant".
The announcement sent shockwaves through the automotive industry where Mr Ghosn, 64, is seen as titan, responsible for a dramatic turnaround at Nissan in the early 2000s.
