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The effect of bank relationships on bond spreads: Additional evidence from Japan

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  • Aoki, Yasuharu

Abstract

This study investigates the impact of bank relationships on bond spreads using data on Japanese bond-issuing firms. In doing so, it extends the existing literature, which found that bank relationships decrease bond spreads, consistent with the view that bond investors benefit from bank monitoring, but this is not the case for investment-grade bonds in the US. This study provides evidence that the influence on the yields of investment-grade bonds varies with the type of bank relationship. In this research, a main bank is defined as a bank that is not merely the top lender to a firm but also one of the ten largest shareholders, while firms that borrow money from banks but have no ties with main banks are considered to have support bank relationships. The regression results show that although main bank relationships are not systematically associated with the yields of investment-grade bonds, support bank relationships are positively associated with them. It is suggested that, even for a sample of investment-grade bonds, a specific type of bank relationship affects bond spreads and the association between them is consistent with the view that bond investors are concerned about the hold-up problem posed by banks.

Suggested Citation

  • Aoki, Yasuharu, 2021. "The effect of bank relationships on bond spreads: Additional evidence from Japan," Journal of Corporate Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:corfin:v:68:y:2021:i:c:s0929119921000584
    DOI: 10.1016/j.jcorpfin.2021.101937
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    Cited by:

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    2. Aoki, Yasuharu, 2023. "The effect of dividend smoothing on bond spreads: Evidence from Japan," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 621-637.

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    More about this item

    Keywords

    Bond spread; Bank relationship; Main bank; Bank monitoring; Hold-up problem;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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