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Regulation and the cost of capital in Japan: a case study

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Author Info
John Ammer
Michael S. Gibson
Abstract

Over the last several years, a combination of loan losses and regulatory barriers to equity issuance have left Japanese banks starved for capital. In September 1995, the Mitsubishi Bank was permitted to issue a complicated convertible security in a foreign market. The results of simulations of the price path of the underlying equity imply that Mitsubishi Bank's annualized risk-adjusted cost of capital through this instrument was between 80 and 310 basis points higher than if the bank had instead been able to issue common stock at its current price.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 556.

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Date of creation: 1996
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Handle: RePEc:fip:fedgif:556

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Related research
Keywords: Capital ; Japan;

References listed on IDEAS
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  1. Kang, Jun-Koo & Stulz, Rene M, 1996. "How Different Is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(1), pages 109-39. [Downloadable!] (restricted)
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  2. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March. [Downloadable!] (restricted)
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  3. Kang, Jun-Koo & Kim, Yong-Cheol & Park, Kyung-Joo & Stulz, Ren? M., 1995. "An Analysis of the Wealth Effects of Japanese Offshore Dollar-Denominated Convertible and Warrant Bond Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(02), pages 257-270, June. [Downloadable!]
  4. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September. [Downloadable!] (restricted)
  5. Dann, Larry Y. & Mikkelson, Wayne H., 1984. "Convertible debt issuance, capital structure change and financing-related information : Some new evidence," Journal of Financial Economics, Elsevier, vol. 13(2), pages 157-186, June. [Downloadable!] (restricted)
  6. Jun-Koo, Kang & Lee, Yul W., 1996. "The pricing of convertible debt offerings," Journal of Financial Economics, Elsevier, vol. 41(2), pages 231-248, June. [Downloadable!] (restricted)
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Cited by:
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  1. Hesna Genay, 1998. "Assessing the condition of Japanese banks: how informative are accounting earnings?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 12-34. [Downloadable!]
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