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Bank-Firm Relationships and Security Analyst Activities: Evidence from Japan

Author

Listed:
  • Kentaro Koga

    (Graduate School of International Corporate Strategy, Hitotsubashi University, Japan)

  • Satomi Uchino

    (School of Commerce, Senshu University, Japan)

Abstract

Banks play a critical role in corporate governance in many economies around the world. This paper empirically compares the activities of security analysts (i.e., analyst coverage, forecast accuracy and forecast agreement) between firms with and without close working relationships with their banks in order to gain insights into how bank-firm relationships affect the information environments for capital market investors. Close bank-firm relationships signal the banks' positive evaluation of the firms because the banks screen the firms before entering or extending the relationships. Further, during the relationships, the banks monitor these firms. Thus, capital market investors are less motivated to scrutinize the firms, thereby demand less information. Investigating Japanese firms, we document that security analysts’ forecasts are less accurate and less agreed (i.e., more dispersed) for the firms with long-established relationships with banks. Likewise, analyst coverage, forecast accuracy and forecast agreement are all lower for the firms with a larger amount of loans (i.e., private debt). The associations between bank-firm relationships and security analyst activities hold after controlling for the potential correlated variables (i.e., capital market financing, performance volatility, financial distress, cross-holding).

Suggested Citation

  • Kentaro Koga & Satomi Uchino, 2012. "Bank-Firm Relationships and Security Analyst Activities: Evidence from Japan," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 49-73, December.
  • Handle: RePEc:kob:tjrevi:dec2012:v:2:p:49-73
    as

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    File URL: http://www.rieb.kobe-u.ac.jp/tjar/article/vol2/pdf/3.Koga_and_Uchino.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance; Security Analyst; Bank; Japan;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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