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The Impact of Bank Entry in the Japanese Corporate Bond Underwriting Market

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  • C.R. McKenzie
  • Sumiko Takaoka

Abstract

The 1993 Japanese financial system reform allowed banks to enter the underwriting market for corporate bonds through bank-owned security subsidiaries. This paper examines empirically whether underwriting commissions and spreads for corporate bonds fell as a result of this bank entry. The empirical results show that bank entry significantly lowers underwriting commissions. Commissions charged by banks are significantly lower than those charged by investment houses. In contrast, there is no strong evidence that bond spreads are significantly lowered by bank entry. A main bank relationship between the issuing firm and the parent of a bank-owned underwriting subsidiary does not have any significant influence in commission setting or the determination of spreads

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Australasian Meetings with number 128.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:ausm04:128

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Keywords: financial system reform; bank entry; bank share; commission; main bank; spread; underwriting;

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  1. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
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  6. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1175-1202.
  7. Konishi, Masaru, 2002. "Bond underwriting by banks and conflicts of interest: Evidence from Japan during the pre-war period," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 767-793, April.
  8. George Athanassakos & Peter Carayannopoulos, 2001. "An empirical analysis of the relationship of bond yield spreads and macro economic factors," Applied Financial Economics, Taylor & Francis Journals, vol. 11(2), pages 197-207.
  9. Roten, Ivan C. & Mullineaux, Donald J., 2002. "Debt underwriting by commercial bank-affiliated firms and investment banks: More evidence," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 689-718, April.
  10. Puri, Manju, 1999. "Commercial banks as underwriters: implications for the going public process," Journal of Financial Economics, Elsevier, vol. 54(2), pages 133-163, October.
  11. Ayako Yasuda, 2001. "Institutions, Relationships and Bank Competition in Bond Underwriting Markets: An International Comparative Study," Center for Financial Institutions Working Papers 01-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
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Cited by:
  1. Nakashima, Kiyotaka & Saito, Makoto, 2009. "Credit spreads on corporate bonds and the macroeconomy in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 23(3), pages 309-331, September.
  2. de Jong, Abe & Roosenboom, Peter & Schramade, Willem, 2006. "Bond underwriting fees and keiretsu affiliation in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 14(5), pages 522-545, November.
  3. Sun, Yue & Uchida, Konari & Matsumoto, Mamoru, 2013. "The dark side of independent venture capitalists: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 279-300.
  4. Mark M. Spiegel & Jose A. Lopez, 2009. "Foreign entry into underwriting services: evidence from Japan's "Big Bang" deregulation," Working Paper Series 2009-14, Federal Reserve Bank of San Francisco.
  5. Takanori Tanaka, 2011. "Corporate Governance and the Costs of Public Debt Financing: Evidence from Japan," Discussion Papers in Economics and Business 11-35, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  6. Yasuda, Ayako, 2007. "Bank relationships and underwriter competition: Evidence from Japan," Journal of Financial Economics, Elsevier, vol. 86(2), pages 369-404, November.
  7. Suzuki, Katsushi, 2010. "Do the equity holding and soundness of bank underwriters affect issue costs of SEOs?," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 984-995, May.
  8. Van Overfelt W. & Annaert J. & De Ceuster M. & Deloof M., 2007. "Do Universal Banks Create Value? Universal Bank Affiliation and Company Performance in Belgium, 1905-1909," Working Papers 2007001, University of Antwerp, Faculty of Applied Economics.

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