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Financial turbulence and the Japanese main bank

Listed author(s):
  • Mark M. Spiegel
  • Nobuyoshi Yamori

The Japanese "main bank" relationship, under which a bank holds equity in a firm and plays a leading role in its decision-making and financing, may leave a firm dependent on its main bank for financing due its information advantage over other potential lenders. While alternative sources of finance may mitigate this dependency, it may resurface during episodes of financial turbulence. ; We examine the sensitivity of returns on portfolios of Japanese firm equity to the returns of their main banks using a three-factor arbitrage-pricing model. We find no significant dependence on main bank returns when coefficient values are constrained to remain constant over the entire sample. However, the data strongly suggest a structural break subsequent to the last quarter of 1997, a turbulent period for Japanese financial markets. When a structural break is introduced, main bank sensitivity increases after the break, usually to significantly positive levels.

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File URL: http://www.frbsf.org/econrsrch/workingp/pbc/2000/wppb00-04.pdf
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Paper provided by Federal Reserve Bank of San Francisco in its series Pacific Basin Working Paper Series with number 2000-04.

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Date of creation: 2000
Handle: RePEc:fip:fedfpb:2000-04
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  1. Mark M. Spiegel & Nobuyoshi Yamori, 2000. "The evolution of "too-big-to-fail" policy in Japan: evidence from market equity values," Pacific Basin Working Paper Series 00-01, Federal Reserve Bank of San Francisco.
  2. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 33-60.
  3. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
  4. Spiegel, Mark M., 2000. "Bank Charter Value and the Viability of the Japanese Convoy System," Journal of the Japanese and International Economies, Elsevier, vol. 14(3), pages 149-168, September.
  5. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032473, September.
  6. Sheard Paul, 1994. "Reciprocal Delegated Monitoring in the Japanese Main Bank System," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 1-21, March.
  7. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-856, July.
  8. Kang, Jun-Koo & Stulz, Rene M, 2000. "Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience," The Journal of Business, University of Chicago Press, vol. 73(1), pages 1-23, January.
  9. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
  10. Yamori, Nobuyoshi & Murakami, Akinobu, 1999. "Does bank relationship have an economic value?: The effect of main bank failure on client firms," Economics Letters, Elsevier, vol. 65(1), pages 115-120, October.
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