Capital positions of Japanese banks
Japanese banks are promising sources of capital for developing countries wishing to finance a balance of payments gap. This paper shows that Japanese banks are highly capitalized in terms of market value; much of their capital is"hidden capital,"the divergence between accounting and stock market estimates. The authors developed a method for testing hypotheses about two types of hidden capital: the misvaluation of on-balance-sheet items and intangible values that the General Accepted Accounting Principles (GAPP) currently designates to be unbookable off-balance-sheet items. They construct a model that explains changes in both types of capital functions of holding-period returns earned in Japan on stocks, bonds, yen, and real estate. They apply the model to annual data for 1975-89 and a four-class size/charter participation of the Japanese banking system. For each type of hidden capital and each class of bank, the model develops estimates of the stock market, interest rate, foreign exchange, and real estate sensitivities of returns to bank stockholders. Only the stock market sensitivities prove significant, at 5 percent. Time-series regressions show that the large Japanese banks have developed stock market betas over two and that the value of the bank's beta has come to increase with measures of its size and accounting leverage.
|Date of creation:||31 Jan 1991|
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- Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990.
"Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships,"
in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126
National Bureau of Economic Research, Inc.
- Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Working Papers 3079, National Bureau of Economic Research, Inc.
- Edward J. Kane & Haluk Unal, 1988.
"Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms,"
NBER Working Papers
2693, National Bureau of Economic Research, Inc.
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- Pettway, Richard H & Tapley, T Craig & Yamada, Takeshi, 1988. "The Impacts of Financial Deregulation upon Trading Efficiency and the Levels of Risk and Return of Japanese Banks," The Financial Review, Eastern Finance Association, vol. 23(3), pages 243-268, August.
- Reinganum, Marc R., 1981. "Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values," Journal of Financial Economics, Elsevier, vol. 9(1), pages 19-46, March.
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