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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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References

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  1. 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.
  2. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2003. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry," CIRJE F-Series CIRJE-F-241, CIRJE, Faculty of Economics, University of Tokyo.
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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. Yasushi Hamao & Takeo Hoshi & Tetsuji Okazaki, 2009. "Listing Policy and Development of the Tokyo Stock Exchange in the Pre-War Period," NBER Chapters, in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 51-87 National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. 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.
  6. Sawada, Michiru, 2010. "Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 392-406, June.
  7. Tetsuji Okazaki & Michiru Sawada & Kazuki Yokoyama, 2003. "Measuring the Extent and Implications of Director Interlocking in the Pre-war Japanese Banking Industry," CIRJE F-Series CIRJE-F-241, 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," CIRJE F-Series CIRJE-F-379, CIRJE, Faculty of Economics, University of Tokyo.
  9. 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.
  10. Tetsuji Okazaki & Michiru Sawada, 2008. "Interbank Networks in Pre-war Japan:Structure and Implications," CARF F-Series CARF-F-142, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  11. Yokoyama, Kazuki, 2007. "Too Big to Fail: the Panic of 1927," MPRA Paper 2768, University Library of Munich, Germany.
  12. 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.

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