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Assessing the condition of Japanese banks: how informative are accounting earnings?

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  • Hesna Genay
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    Abstract

    This article examines the accounting and stock market performance of banks from 1991 to 1997. Overall, the results indicate that the accounting, disclosure, and regulatory practices of Japanese banks have drive a wedge between their accounting and stock market returns in recent years and, furthermore, that regulatory forbearance might have become a more important source of value to shareholders than the value of assets in place.

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    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/1998/ep4Q98_2.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (1998)
    Issue (Month): Q IV ()
    Pages: 12-34

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    Handle: RePEc:fip:fedhep:y:1998:i:qiv:p:12-34:n:v.22no.4

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    Related research

    Keywords: Bank profits - Japan ; Japan ; Stock market - Japan ; Accounting;

    References

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    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, Elsevier, vol. 36(2), pages 225-258, October.
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    5. Joe Peek & Eric S. Rosengren, 1997. "Collateral damage: effects of the Japanese real estate collapse on credit availability and real activity in the United States," Working Papers, Federal Reserve Bank of Boston 97-5, Federal Reserve Bank of Boston.
    6. Stephen F. LeRoy, 1990. "Mutual deposit insurance," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun8.
    7. Pyle, David H., 1986. "Capital regulation and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 189-201, June.
    8. Allen N. Berger, 1994. "The relationship between capital and earnings in banking," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 94-2, Board of Governors of the Federal Reserve System (U.S.).
    9. Lisa K. Ashley & Elijah Brewer, III & Nancy E. Vincent, 1998. "Access to FHLBank advances and the performance of thrift institutions," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q II, pages 33-52.
    10. Hesna Genay, 1993. "The ownership structure of Japanese financial institutions," Working Paper Series, Issues in Financial Regulation 93-19, Federal Reserve Bank of Chicago.
    11. Allen B. Frankel & Paul B. Morgan, 1992. "Deregulation and competition in Japanese banking," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 579-593.
    12. Berger, Allen N. & King, Kathleen Kuester & O'Brien, James M., 1991. "The limitations of market value accounting and a more realistic alternative," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 753-783, September.
    13. Edward J. Kane & Haluk Unal, 1988. "Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms," NBER Working Papers 2693, National Bureau of Economic Research, Inc.
    14. George J. Benston & George G. Kaufman, 1998. "Deposit insurance reform in the FDIC Improvement Act: the experience to date," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q II, pages 2-20.
    15. Michael S. Gibson, 1996. "More evidence on the link between bank health and investment in Japan," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 549, Board of Governors of the Federal Reserve System (U.S.).
    16. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, American Finance Association, vol. 53(2), pages 635-672, 04.
    17. John Ammer & Michael S. Gibson, 1996. "Regulation and the cost of capital in Japan: a case study," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 556, Board of Governors of the Federal Reserve System (U.S.).
    18. Rebecca S. Demsetz & Marc R. Saidenberg & Philip E. Strahan, 1996. "Banks with something to lose: the disciplinary role of franchise value," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Oct, pages 1-14.
    19. Kane, Edward J., 1986. "Appearance and reality in deposit insurance: The case for reform," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 175-188, June.
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    Cited by:
    1. Cavallo, Michele & Majnoni, Giovanni, 2001. "Do Banks provision for bad loans in good times? empirical evidence and policy implications," Policy Research Working Paper Series 2619, The World Bank.
    2. Brewer, Elijah III & Genay, Hesna & Hunter, William Curt & Kaufman, George G., 2003. "The value of banking relationships during a financial crisis: Evidence from failures of Japanese banks," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 233-262, September.
    3. Anderson, Christopher W. & Campbell, Terry II, 2004. "Corporate governance of Japanese banks," Journal of Corporate Finance, Elsevier, Elsevier, vol. 10(3), pages 327-354, June.
    4. Iftekhar Hasan & Larry D. Wall, 2004. "Determinants of the Loan Loss Allowance: Some Cross-Country Comparisons," The Financial Review, Eastern Finance Association, Eastern Finance Association, vol. 39(1), pages 129-152, 02.
    5. Hyytinen, Ari & Takalo, Tuomas, 2002. "Enchancing Bank Transparency : A Re-assessment," Discussion Papers, The Research Institute of the Finnish Economy 828, The Research Institute of the Finnish Economy.
    6. Elyas Elyasiani & Iqbal Mansur, 2005. "The Association Between Market and Exchange Rate Risks and Accounting Variables: A GARCH Model of the Japanese Banking Institutions," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 25(2), pages 183-206, September.
    7. Elijah Brewer, III & Hesna Genay & George G. Kaufman, 2003. "Banking relationships during financial distress: the evidence from Japan," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q III, pages 2-18.
    8. Elijah Brewer, III & Hesna Genay & William C. Hunter & George Kaufman, 1999. "Does the Japanese stock market price bank risk? evidence from financial firm failures," Working Paper Series, Federal Reserve Bank of Chicago WP-99-31, Federal Reserve Bank of Chicago.
    9. Shrieves, Ronald E. & Dahl, Drew, 2003. "Discretionary accounting and the behavior of Japanese banks under financial duress," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1219-1243, July.
    10. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Ghon Rhee, S., 2007. "Earnings management behaviors under different economic environments: Evidence from Japanese banks," International Review of Economics & Finance, Elsevier, Elsevier, vol. 16(3), pages 429-443.

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