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Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry

Author

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  • OKAZAKI, TETSUJI
  • SAWADA, MICHIRU
  • YOKOYAMA, KAZUKI

Abstract

In prewar Japan, many banks were controlled by industrial companies through capital and personal relationships. The literature has pointed out that those banks engaged in unsound lending to their related companies, which resulted in damage to the financial system (organ bank hypothesis). In this article we examine this hypothesis by measuring director interlocking between banks and nonbanking companies. It was found that more than 80 percent of ordinary banks had director interlocking with at least one nonbanking company. Also, regression analyses confirmed that director interlocking had a negative effect on bank performance, especially for smaller banks.

Suggested Citation

  • Okazaki, Tetsuji & Sawada, Michiru & Yokoyama, Kazuki, 2005. "Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry," The Journal of Economic History, Cambridge University Press, vol. 65(4), pages 1082-1115, December.
    • Handle: RePEc:cup:jechis:v:65:y:2005:i:04:p:1082-1115_00
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