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The impact of Japan's financial stabilization laws on bank equity values

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  • Spiegel, Mark M.
  • Yamori, Nobuyoshi

Abstract

In the fall of 1998, two important financial regulatory reform acts were passed in Japan. The first of these acts, the Financial Recovery Act, created a bridge bank scheme and provided funds for the resolution of failed banks. The second act, the Rapid Revitalization Act, provided funds for the assistance of troubled banks. While both of these acts provided some government assistance to the banking sector, they also called for reforms aimed at strengthening the regulatory environment. ; Using an event study framework, this paper examines the evidence in equity markets concerning the anticipated impact of the regulatory reforms. Our evidence suggests that the Financial Recovery Act was expected to hurt large banks, while the anticipated impact of the act by financial strength was mixed. In contrast, the anticipated impact of the Rapid Revitalization Act was expected to be unambiguously anti-reform, as news favorable to its passage disproportionately favored large and weak Japanese banks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 17 (2003)
Issue (Month): 3 (September)
Pages: 263-282

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Handle: RePEc:eee:jjieco:v:17:y:2003:i:3:p:263-282

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Web page: http://www.elsevier.com/locate/inca/622903

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References

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  1. Mark M. Spiegel & Nobuyoshi Yamori, 2000. "The evolution of "too-big-to-fail" policy in Japan: evidence from market equity values," Pacific Basin Working Paper Series 00-01, Federal Reserve Bank of San Francisco.
  2. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
  3. Joe Peek & Eric S. Rosengren, 1998. "Determinants of the Japan premium: actions speak louder than words," Working Papers 98-9, Federal Reserve Bank of Boston.
  4. Spiegel, M.M. & Yamori, N., 2000. "The Evolution of Too-Big-Fail Policy in Japan: Evidence from Market Equity Values," Papers pb00-01, Economisch Institut voor het Midden en Kleinbedrijf-.
  5. Giliberto, Michael, 1985. "Interest Rate Sensitivity in the Common Stocks of Financial Intermediaries: A Methodological Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(01), pages 123-126, March.
  6. Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
  7. Akhigbe, Aigbe & Whyte, Ann Marie, 2001. "The impact of FDICIA on bank returns and risk: Evidence from the capital markets," Journal of Banking & Finance, Elsevier, vol. 25(2), pages 393-417, February.
  8. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  9. Aharony, Joseph & Swary, Itzhak, 1996. "Additional evidence on the information-based contagion effects of bank failures," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 57-69, January.
  10. Grammatikos, Theoharry & Saunders, Anthony, 1990. "Additions to bank loan-loss reserves : Good news or bad news?," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 289-304, March.
  11. Liang, Youguo & Mohanty, Sunil & Song, Frank, 1996. "The Effect of the Federal Deposit Insurance Corporation Improvement Act of 1991 on Bank Stocks," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 19(2), pages 229-42, Summer.
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Citations

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Cited by:
  1. Takeshi Kobayashi & Mark Spiegel & Nobuyoshi Yamori, 2006. "Quantitative easing and Japanese bank equity values," Working Paper Series 2006-19, Federal Reserve Bank of San Francisco.
  2. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September.
  3. David C. Smith, 2002. "Loans to Japanese borrowers," Pacific Basin Working Paper Series 02-11, Federal Reserve Bank of San Francisco.
  4. Kimie Harada & Takatoshi Ito & Shuhei Takahashi, 2010. "Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies," NBER Working Papers 16182, National Bureau of Economic Research, Inc.
  5. Masami Imai, 2006. "The Emergence of Market Monitoring in Japanese Banks: Evidence from the Subordinated Debt Market," Wesleyan Economics Working Papers 2006-008, Wesleyan University, Department of Economics.
  6. Shimizu, Katsutoshi, 2006. "How can we effectively resolve the financial crisis: Empirical evidence on the bank rehabilitation plan of the Japanese government," Pacific-Basin Finance Journal, Elsevier, vol. 14(2), pages 119-134, April.
  7. David C. Smith, 2003. "Loans to Japanese borrowers," International Finance Discussion Papers 769, Board of Governors of the Federal Reserve System (U.S.).
  8. Imai, Masami, 2007. "The emergence of market monitoring in Japanese banks: Evidence from the subordinated debt market," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1441-1460, May.

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