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Have Banks Contributed to Efficient Management in Japan's Manufacturing?

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  • Masaharu Hanazaki

    (Development Bank of Japan)

  • Akiyoshi Horiuchi

    (Faculty of Economics, University of Tokyo)

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    Abstract

    This paper statistically reexamines the conventional view that the main bank relationship has been an important element of corporate governance in Japan. According to the view, in postwar Japan, the main bank relationship has contributed to efficient management of borrower firms in place of the capital market that disciplines corporate management in the Anglo-American economy. Our analysis finds that neither the main bank relationship nor other capital market factors, which the standard governance theory regards as important determinants of managerial efficiency, consistently influenced efficiency of manufacturing firms' management defined by the total factor productivity (TFP). Instead, market competition, particularly competitive pressures from abroad, is found to have consistently enhanced management efficiency. Thus, the conventional view exaggerates importance of the main bank relationship in the Japanese corporate governance framework.

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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2000/2000cf76.pdf
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    Bibliographic Info

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-76.

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    Length: 27 pages
    Date of creation: Jun 2000
    Date of revision:
    Handle: RePEc:tky:fseres:2000cf76

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    1. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
    2. MacDonald, James M, 1994. "Does Import Competition Force Efficient Production?," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 721-27, November.
    3. Prowse, Stephen D, 1992. " The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-40, July.
    4. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
    5. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
    6. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    7. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    8. Nickell, Stephen & Wadhwani, Sushil & Wall, Martin, 1992. "Productivity growth in U.K. companies, 1975-1986," European Economic Review, Elsevier, vol. 36(5), pages 1055-1085, June.
    9. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    10. Kim, Kenneth A & Limpaphayom, Piman, 1998. "A Test of the Two-Tier Corporate Governance Structure: The Case of Japanese Keiretsu," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 21(1), pages 37-51, Spring.
    11. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
    12. Berglof, Erik & Perotti, Enrico, 1994. "The governance structure of the Japanese financial keiretsu," Journal of Financial Economics, Elsevier, vol. 36(2), pages 259-284, October.
    13. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 169-215, February.
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    Cited by:
    1. Franklin Allen, 2001. "Do Financial Institutions Matter?," Center for Financial Institutions Working Papers 01-04, Wharton School Center for Financial Institutions, University of Pennsylvania.

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