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

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

Economic historians have long accepted the view that in prewar Japan, many of the banks were closely connected with certain industrial companies, and those banks loosely gave loans to the connected companies. However, there has been no attempt to test this view quantitatively. In this paper, we measured the extent and implications of the director interlocking in the prewar banking industry, through compiling a comprehensive database of company directors and auditors in 1926. We found that interlocking of directors and auditors between banks and non-banking companies was very pervasive. Nearly 90% of ordinary banks had more than one directors or auditors who were at the same time directors or auditors of non-banking companies. Also, through regression analyses, we found that those banks with interlocking were less profitable and had riskier financial structures, and that interlocking increased the probability of bank closure and bank runs.

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Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 65 (2005)
Issue (Month): 04 (December)
Pages: 1082-1115

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Handle: RePEc:cup:jechis:v:65:y:2005:i:04:p:1082-1115_00
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  1. 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(04), pages 1082-1115, December.
  2. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  3. Bourke, Philip, 1989. "Concentration and other determinants of bank profitability in Europe, North America and Australia," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 65-79, March.
  4. Yabushita Shiro & Inoue Atsushi, 1993. "The Stability of the Japanese Banking System: A Historical Perspective," Journal of the Japanese and International Economies, Elsevier, vol. 7(4), pages 387-407, December.
  5. Tetsuji Okazaki & Kazuki Yokoyama, 2001. "Governance and Performance of Banks in Prewar Japan: Testing the "Organ Bank" Hypothesis Quantitatively," CIRJE F-Series CIRJE-F-111, CIRJE, Faculty of Economics, University of Tokyo.
  6. Tetsuji Okazaki, 2001. ""Selection, Exits and Efficiency in the Japanese Banking Industry: An Historical Perspective" (in Japanese)," CIRJE J-Series CIRJE-J-63, CIRJE, Faculty of Economics, University of Tokyo.
  7. Tetsuji Okazaki, 2003. "Selection and Imitation in Institutional Evolution: Analysis of Institutional Change in Japan, 1960-1999," CIRJE F-Series CIRJE-F-227, CIRJE, Faculty of Economics, University of Tokyo.
  8. Tetsuji Okazaki, 2000. "Role of Holding Companies in Prewar Japanese Economic Development: Rethinking Zaibatsu in Perspectives of Corporate Governance," CIRJE F-Series CIRJE-F-74, CIRJE, Faculty of Economics, University of Tokyo.
  9. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, June.
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