Why do Japanese regional banks issue subordinated debts?
AbstractThis paper empirically investigates the determinants of subordinated debt issuance by Japanese regional banks during the period of 2000-2007 using a probit model. The empirical results suggest the following. (i) Throughout the period, Japanese regional banks with a lower capital ratio tended to have a higher incentive to issue subordinated debts due possibly to their counting as Tier 2 capital under the Basel Accord. (ii) During the period of banking instability (2000-2003), subordinated debt investors tended to use financial variables such as the non-performing loan ratio, ROA, and ROE to screen good banks. (iii) During the period after the banking system regained stability (2004-2007), investors tended to pay less attention to the above variables due chiefly to the mitigated default risk of these banks.
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Bibliographic InfoArticle provided by Elsevier in its journal Japan and the World Economy.
Volume (Year): 21 (2009)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/inca/505557
Subordinated debt Japanese banks Basel Accord Market discipline Non-performing loan problem;
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