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Bank Ties and Firm Performance in Japan: Some Evidence since FY2002

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Author Info
Patrick McGuire (Senior economist, Monetary and Economic Department, Bank for International Settlements (E-mail: patrick.mcguire@bis.org))
Abstract

Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firmsf top 10 shareholders, this paper explores the process of banksf equity disposal. There is some evidence that, after FY2001, banksf sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank - proxied by firm-bank loan and shareholding ties - continues to be negatively associated with firm performance through FY2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-03.

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Date of creation: Jan 2009
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Handle: RePEc:ime:imedps:09-e-03

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Related research
Keywords: Cross-Shareholding; Main Bank; Japanese Banks; Firm Performance;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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