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Regulation and the cost of capital in Japan: a case study

  • John Ammer
  • Michael S. Gibson
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    Over the last several years, a combination of loan losses and regulatory barriers to equity issuance have left Japanese banks starved for capital. In September 1995, the Mitsubishi Bank was permitted to issue a complicated convertible security in a foreign market. The results of simulations of the price path of the underlying equity imply that Mitsubishi Bank's annualized risk-adjusted cost of capital through this instrument was between 80 and 310 basis points higher than if the bank had instead been able to issue common stock at its current price.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/556/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/556/ifdp556.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 556.

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    Date of creation: 1996
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    Handle: RePEc:fip:fedgif:556
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    1. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    2. Charles Lee & Andrei Shleifer & Richard Thaler, 1990. "Investor Sentiment and the Closed-End Fund Puzzle," NBER Working Papers 3465, National Bureau of Economic Research, Inc.
    3. Kang, Jun-Koo & Kim, Yong-Cheol & Park, Kyung-Joo & Stulz, René M., 1995. "An Analysis of the Wealth Effects of Japanese Offshore Dollar-Denominated Convertible and Warrant Bond Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(02), pages 257-270, June.
    4. Dann, Larry Y. & Mikkelson, Wayne H., 1984. "Convertible debt issuance, capital structure change and financing-related information : Some new evidence," Journal of Financial Economics, Elsevier, vol. 13(2), pages 157-186, June.
    5. Jun-Koo, Kang & Lee, Yul W., 1996. "The pricing of convertible debt offerings," Journal of Financial Economics, Elsevier, vol. 41(2), pages 231-248, June.
    6. Jun-Koo Kang & Rene M. Stulz, 1994. "How Different is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues," NBER Working Papers 4908, National Bureau of Economic Research, Inc.
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