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Banking Relationships and Access to Equity Capital Markets: Evidence from Japan’s Main Bank System

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Author Info

  • Kenji Ketsuna

    (Kobe University)

  • Janet Kiholm Smith

    (Claremont McKenna College)

  • Richard L. Smith

    (Drucker Graduate School of Management, Claremont Graduate University)

Abstract

We study the role of banking relationships in IPO underwriting using a sample of 484 Japanese IPOs. Among other issues, we consider whether bank relationships lead to increased access to public equity markets, especially for smaller, lesser-known firms. When a firm in Japan goes public, it can engage an investment bank that is related through a common main bank, or can select an alternative investment bank. The main bank relationship can be an efficient way for the investment bank to acquire information generated by the main bank, but may give rise to conflicts of interest. We use data from two different investment banking regimes in Japan (a hybrid auction-method regime and a book-building regime) and find that main bank relationships give small issuers increased access to equity capital markets, but that issuers of large IPOs switch to non-related investment banks that are capable of managing large offerings. While we find evidence that investment banks seek to exploit bargaining power with related issuers, we also find that issuers respond to expected high issue cost by switching to non-related investment banks. The net result is that total issue costs through related and non-related investment banks are similar. With respect to aftermarket performance and use of offer proceeds, we find no evidence of conflict of interest or self-dealing for either the main bank or the investment bank.

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Bibliographic Info

Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2003-09.

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Date of creation: May 2003
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Handle: RePEc:clm:clmeco:2003-09

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Keywords: Main Bank; Banking Relationships; Capital Market Access; IPOs; Underwriting; Japanese Economy;

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References

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Citations

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Cited by:
  1. Sohn, Wook, 2010. "Market response to bank relationships: Evidence from Korean bank reform," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2042-2055, September.
  2. Gajewski, Krzysztof & Pawłowska, Małgorzata & Rogowski, Wojciech, 2012. "Relacje firm z bankami w Polsce w świetle danych ze sprawozdawczości bankowej
    [Bank-firm relationships in Poland in the light of data from bank reporting]
    ," MPRA Paper 42544, University Library of Munich, Germany, revised 29 Oct 2012.
  3. Kenji Kutsuna & William Dimovski & Robert Brooks, 2008. "The Pricing and Underwriting Costs of Japanese REIT IPOs," Journal of Property Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 25(3), pages 221-239, November.
  4. Sun, Yue & Uchida, Konari & Matsumoto, Mamoru, 2013. "The dark side of independent venture capitalists: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 24(C), pages 279-300.
  5. Wu, Xueping & Yao, Jun, 2012. "Understanding the rise and decline of the Japanese main bank system: The changing effects of bank rent extraction," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 36-50.

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