The new main bank system
AbstractWe develop a main bank model where the main bank decides whether or not to raise additional funds from the capital market to continue to invest in a borrowing firm when nonmain banks withdraw funds. We show that the threat of withdrawal of nonmain banks is more likely to force the main bank to perform efficiently in handling troubled loans, thereby preventing problems with zombie firms, if the potential cash flow (liquidation value) of the firm decreases (increases) relative to the amount funded by nonmain banks. The theoretical results provide both efficiency evaluations for the renewal of the main bank relation in Japan after the end of the 1990s and empirical implications for the renewed main bank system.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of the Japanese and International Economies.
Volume (Year): 25 (2011)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/622903
Liquidity Main bank Zombie firms;
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