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

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Author Info
Masami Imai () (Economics and East Asian Studies, Wesleyan University)
Abstract

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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Publisher Info
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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Related research
Keywords: Market Discipline; Subordinated Debts; Japanese Bank;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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    Other versions:
  3. Mark M. Spiegel & Nobuyoshi Yamori, 2004. "The Evolution Of Bank Resolution Policies In Japan: Evidence From Market Equity Values," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 27(1), pages 115-132. [Downloadable!] (restricted)
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  20. C. N. V. Krishnan & P. H. Ritchken & J. B. Thomson, 2005. "Monitoring and Controlling Bank Risk: Does Risky Debt Help?," Journal of Finance, American Finance Association, vol. 60(1), pages 343-378, 02. [Downloadable!] (restricted)
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