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Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry

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  • OKAZAKI, TETSUJI
  • SAWADA, MICHIRU
  • YOKOYAMA, KAZUKI

Abstract

In prewar Japan, many banks were controlled by industrial companies through capital and personal relationships. The literature has pointed out that those banks engaged in unsound lending to their related companies, which resulted in damage to the financial system (organ bank hypothesis). In this article we examine this hypothesis by measuring director interlocking between banks and nonbanking companies. It was found that more than 80 percent of ordinary banks had director interlocking with at least one nonbanking company. Also, regression analyses confirmed that director interlocking had a negative effect on bank performance, especially for smaller banks.

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Bibliographic Info

Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 65 (2005)
Issue (Month): 04 (December)
Pages: 1082-1115

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Handle: RePEc:cup:jechis:v:65:y:2005:i:04:p:1082-1115_00

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  1. Yabushita Shiro & Inoue Atsushi, 1993. "The Stability of the Japanese Banking System: A Historical Perspective," Journal of the Japanese and International Economies, Elsevier, vol. 7(4), pages 387-407, December.
  2. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2005. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry," CIRJE F-Series CIRJE-F-355, CIRJE, Faculty of Economics, University of Tokyo.
  3. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  4. Bourke, Philip, 1989. "Concentration and other determinants of bank profitability in Europe, North America and Australia," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 65-79, March.
  5. Tetsuji Okazaki, 2004. "Selection and Imitation in Institutional Evolution: Analysis of Institutional Change in Japan, 1960-1999," CIRJE F-Series CIRJE-F-256, CIRJE, Faculty of Economics, University of Tokyo.
  6. Tetsuji Okazaki, 2001. ""Selection, Exits and Efficiency in the Japanese Banking Industry: An Historical Perspective" (in Japanese)," CIRJE J-Series CIRJE-J-63, CIRJE, Faculty of Economics, University of Tokyo.
  7. Tetsuji Okazaki & Kazuki Yokoyama, 2001. "Governance and Performance of Banks in Prewar Japan: Testing the "Organ Bank" Hypothesis Quantitatively," CIRJE F-Series CIRJE-F-111, CIRJE, Faculty of Economics, University of Tokyo.
  8. Tetsuji Okazaki, 2000. "Role of Holding Companies in Prewar Japanese Economic Development: Rethinking Zaibatsu in Perspectives of Corporate Governance," CIRJE F-Series CIRJE-F-74, CIRJE, Faculty of Economics, University of Tokyo.
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Citations

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Cited by:
  1. Tetsuji Okazaki & Michiru Sawada, 2006. "Effects of a bank consolidation promotion policy: Evaluating Bank Law in 1927 Japan," CIRJE F-Series CIRJE-F-400, CIRJE, Faculty of Economics, University of Tokyo.
  2. Okazaki, Tetsuji, 2007. "Micro-aspects of monetary policy: Lender of Last Resort and selection of banks in pre-war Japan," Explorations in Economic History, Elsevier, vol. 44(4), pages 657-679, October.
  3. Tetsuji Okazaki & Michiru Sawada, 2006. ""Effects of a bank consolidation promotion policy: Evaluating Bank Law in 1927 Japan" ;forthcoming in Financial History Review (Published in "Financial History Review", April 2007,," CARF F-Series CARF-F-058, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  4. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2005. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry," CIRJE F-Series CIRJE-F-355, CIRJE, Faculty of Economics, University of Tokyo.
  5. Yokoyama, Kazuki, 2007. "Too Big to Fail: the Panic of 1927," MPRA Paper 2768, University Library of Munich, Germany.
  6. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2005. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry ?Published in "Journal of Economic History", Dec2005, Vol. 65 Issue 4, p1082-1115, 34p," CARF F-Series CARF-F-039, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  7. Tetsuji Okazaki & Michiru Sawada & Ke Wang, 2005. "The Fall of "Organ Bank" Relationships During the Wave of Bank Failures and Consolidations: Experience in Pre-war Japan," CIRJE F-Series CIRJE-F-379, CIRJE, Faculty of Economics, University of Tokyo.
  8. Tetsuji Okazaki & Michiru Sawada & Ke Wang, 2005. "The Fall of "Organ Bank" Relationships During the Wave of Bank Failures and Consolidations: Experience in Pre-war Japan (Published in "Corporate Ownership and Control" 4(4): 20-29,," CARF F-Series CARF-F-052, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  9. Makoto Kasuya, 2007. "Bond markets and banks in inter-war Japan," LSE Research Online Documents on Economics 6873, London School of Economics and Political Science, LSE Library.
  10. Kiril Danailov Kossev, 2008. "The Banking Sector and the Great Depression in Bulgaria, 1924 - 1938: Interlocking and Financial Sector Profitability," Working Papers 76, Bank of Greece.
  11. Jean-Pascal Bassino & Thomas Lagoarde-Segot, 2013. "Trading patterns at the Tokyo Stock Exchange, 1931-1940," CEH Discussion Papers 012, Centre for Economic History, Research School of Economics, Australian National University.

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