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Japanese Banking Industry: A Study on Stock Market Reactions to Changes in the `Capital` Regulations

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  • Mahito Okura
  • Koji Kojima

Abstract

This paper aims to analyze how the introduction and/or the changes of capital regulation affect bank stock prices, and how the introduction and/or the changes of accounting regulation affect bank stock prices. In this study, an agency model was used to describe how an introduction of the capital ratio regulation affects a bank manager’s compensation contract, effort allocation, and a shareholder’s profits. The four main results obtained from the analysis are: (1) the events which strengthen the capital regulation increase expected stock prices; (2) the events which relax the capital regulation decrease expected stock prices; (3) the events which relax the accounting regulation do not change expected stock prices except for the introduction of “Accounting for Income Taxes”; and (4) stock market responded differently to announcements of regulation changes depending on bank’s attributes.

Suggested Citation

  • Mahito Okura & Koji Kojima, 2007. "Japanese Banking Industry: A Study on Stock Market Reactions to Changes in the `Capital` Regulations," The IUP Journal of Bank Management, IUP Publications, vol. 0(2), pages 6-18, May.
    • Handle: RePEc:icf:icfjbm:v:6:y:2007:i:2:p:6-18
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