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On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan

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Author Info
David E. Weinstein (University of Michigan Business School,)
Yishay Yafeh (Economics Department, the Hebrew University)

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Abstract

We examine the effects of bank-firm relationships on firm performance in Japan. When access to capital markets is limited, close bank-firm ties increase the availability of capital to borrowing firms, but do not lead to higher profitability or growth. The cost of capital of firms with close bank ties is higher than that of their peers. This indicates that most of the benefits from these relationships are appropriated by the banks. Finally, the slow growth rates of bank clients suggest that banks discourage firms from investing in risky, profitable projects. However, liberalization of financial markets reduces the banks' market power. Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 2 (04)
Pages: 635-672
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Handle: RePEc:bla:jfinan:v:53:y:1998:i:2:p:635-672

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