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Some Structural Causes of Japan’s Banking Problems

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  • Luke Gower

    (Reserve Bank of Australia)

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    Abstract

    This paper reviews corporate finance literature which explains some of the long-term causes of the Japanese banking sector’s poor performance in the early 1990s. It concentrates on the ideas that an adverse selection problem developed in the bank lending market during the 1980s, and that banks had strong incentives to seek out borrowers which were of lower quality and which had greater exposure to adverse movements in asset prices. Possible links between these hypotheses and the macroeconomic environment are also considered.

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    File URL: http://www.rba.gov.au/publications/rdp/2000/pdf/rdp2000-03.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2000-03.

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    Date of creation: May 2000
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    Handle: RePEc:rba:rbardp:rdp2000-03

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    Keywords: Japanese finance;

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    1. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
    2. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
    3. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March.
    4. Sadahiko Suzuki & Richard W Wright, 1985. "Financial Structure and Bankruptcy Risk in Japanese Companies," Journal of International Business Studies, Palgrave Macmillan, vol. 16(1), pages 97-110, March.
    5. Osano, Hiroshi & Tsutsui, Yoshiro, 1985. "Implicit Contracts in the Japanese Bank Loan Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 211-229, June.
    6. Hodder, James E., 1991. "Is the cost of capital lower in japan?," Journal of the Japanese and International Economies, Elsevier, vol. 5(1), pages 86-100, March.
    7. Edward J. Lincoln, 1998. "Japan's Financial Problems," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 347-385.
    8. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    9. Prowse, Stephen D, 1992. " The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-40, July.
    10. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    11. Hodder, James E. & Tschoegl, Adrian E., 1985. "Some Aspects of Japanese Corporate Finance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(02), pages 173-191, June.
    12. Horiuchi, Akiyoshi & Packer, Frank & Fukuda, Shinichi, 1988. "What role has the "Main Bank" played in Japan?," Journal of the Japanese and International Economies, Elsevier, vol. 2(2), pages 159-180, June.
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