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The emergence of market monitoring in Japanese banks: Evidence from the subordinated debt market

  • Imai, Masami

This paper uses a unique data set on the spreads of subordinated debts issued by Japanese banks to investigate the presence of market monitoring. The results show that subordinated debt investors punished risky banks by requiring higher interest rates. Moreover, I find that the sensitivity of spreads to bank risk increased dramatically after the Japanese government allowed a large city bank, Hokkaido Takushoku Bank, and passed Financial Reform Act and the Rapid Revitalization Act in the late 1990s.

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File URL: http://www.sciencedirect.com/science/article/B6VCY-4M4TNPN-2/2/d72fd89a1446235e46b879b6ce8767fe
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 31 (2007)
Issue (Month): 5 (May)
Pages: 1441-1460

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Handle: RePEc:eee:jbfina:v:31:y:2007:i:5:p:1441-1460
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  18. Spiegel, Mark M. & Yamori, Nobuyoshi, 2003. "The impact of Japan's financial stabilization laws on bank equity values," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 263-282, September.
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  22. Diana Hancock & Myron L. Kwast, 2001. "Using subordinated debt to monitor bank holding companies: is it feasible?," Finance and Economics Discussion Series 2001-22, Board of Governors of the Federal Reserve System (U.S.).
  23. Ito, Takatoshi & Harada, Kimie, 2004. "Credit Derivatives Premium as a New Japan Premium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 965-68, October.
  24. Julapa Jagtiani & George Kaufman & Catharine Lemieux, 2002. "The Effect of Credit Risk on Bank and Bank Holding Company Bond Yields: Evidence from the Post-FDICIA Period," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(4), pages 559-575.
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  27. Christopher Bianchi & Diana Hancock & Laura Kawano, 2004. "Does trading frequency affect subordinated debt spreads?," Finance and Economics Discussion Series 2005-08, Board of Governors of the Federal Reserve System (U.S.).
  28. Adam B. Ashcraft, 2006. "Does the market discipline banks? New evidence from the regulatory capital mix," Staff Reports 244, Federal Reserve Bank of New York.
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