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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. ?

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Author Info

  • Tetsuji Okazaki

    (Faculty of Economics, University of Tokyo)

  • Michiru Sawada

    (Nagoya Gakuin University)

  • Kazuki Yokoyama

    (Faculty of Economics, Nagoya City University)

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    Abstract

    In pre-war Japan, many banks were controlled by industrial companies through capital and personal relationships. Those banks are known as "organ banks" (kikan ginko). Organ banks engaged in unsound lending to their related companies, which resulted in damage to the banks' financial positions and consequently destabilized the financial system. This is a popularly held view of the financial history of pre-war Japan (organ bank hypothesis). However, this view has been based largely on case studies and casual observations. In this paper we examine the organ bank hypothesis using quantitative data and econometric methodology. To measure the extent of connections between banks and non-banking companies, we compiled a comprehensive database of directors and auditors of banks and non-banking companies in 1926. It was found that interlocking of directors and auditors between banks and non-banking companies was very pervasive. More than 80% of ordinary banks had at least one director or auditor who was at the same time a director or auditor of at least one non-banking company. Also, regression analyses confirmed that director interlocking had a negative effect on bank performance, especially for smaller banks.

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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/37.pdf
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    Bibliographic Info

    Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-039.

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    Length: 44 pages
    Date of creation: Jul 2005
    Date of revision:
    Handle: RePEc:cfi:fseres:cf039

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. 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.
    2. Tetsuji Okazaki, 2001. ""Selection, Exits and Efficiency in the Japanese Banking Industry: An Historical Perspective" (in Japanese)," CIRJE J-Series CIRJE-J-63, CIRJE, Faculty of Economics, University of Tokyo.
    3. 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.
    4. Bourke, Philip, 1989. "Concentration and other determinants of bank profitability in Europe, North America and Australia," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 65-79, March.
    5. Tetsuji Okazaki, 2004. "Selection and Imitation in Institutional Evolution: Analysis of Institutional Change in Japan, 1960-1999," CIRJE F-Series CIRJE-F-256, CIRJE, Faculty of Economics, University of Tokyo.
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