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The Emergence of Market Monitoring in Japanese Banks: Evidence from the Subordinated Debt Market

  • Masami Imai


    (Economics and East Asian Studies, Wesleyan University)

This paper uses a unique data set on the spreads of subordinated debts issued by Japanese banks to investigate the presence of market monitoring. The results show that subordinated debt investors punished risky banks by requiring higher interest rates. Moreover, I find that the sensitivity of spreads to bank risk increased dramatically after the Japanese government allowed a large city bank, Hokkaido Takushoku Bank, and passed Financial Reform Act and the Rapid Revitalization Act in the late 1990s.

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Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2006-008.

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Length: 32 pages
Date of creation: Jan 2006
Date of revision:
Publication status: Published in the Journal of Banking and Finance (Volume 31, Issue 5 , May 2007, Pages 1441-1460)
Handle: RePEc:wes:weswpa:2006-008
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