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Were Banks Really at the Center of the Prewar Japanese Financial System?

Author

Listed:
  • Juro Teranishi

    (Professor of Economics, Nihon University (E-mail: teranishi.juro@nihon-u.ac.jp))

Abstract

For many years, the dominant view of the Japanese financial system before World War II has been that industrial bank-type banks were at the center, and research emphasizing the role played by capital markets has generally been in the minority. Recent years, however, have seen the publication of research highlighting the development of prewar stock markets, which has sparked a debate challenging the accepted theory. This paper contains a comprehensive reconsideration of the roles played by banks and stock markets from both a quantitative and a qualitative perspective. On the quantitative side, it examines the structure of assets and liabilities in the private nonfinancial sector and long-term data on fund-raising by major manufacturing and public-sector enterprises. It concludes that while the private nonfinancial sector was in general strongly dependent on bank borrowings, when the focus is narrowed to large enterprises there was a high degree of dependence on equity fund- raising. While diachronic trends can be seen in these characteristics, it is clear that they stem from differences in data coverage and not from any basic changes in systems. On the qualitative side, the paper compares the roles played by banks and stock markets in two areas: resource allocation functions (information production functions and risk-bearing functions) and corporate governance functions. While stock markets did play some role in corporate governance, the paper concludes that resource allocation functions were only exhibited within a narrow group of wealthy individuals. On the other hand, banks played a large role in resource allocation functions by supplying risk money, but the paper concludes that their corporate governance functions were insufficient.

Suggested Citation

  • Juro Teranishi, 2007. "Were Banks Really at the Center of the Prewar Japanese Financial System?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 49-76, March.
  • Handle: RePEc:ime:imemes:v:25:y:2007:i:1:p:49-76
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    File URL: https://www.imes.boj.or.jp/research/papers/english/me25-1-2.pdf
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    Citations

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    Cited by:

    1. Luis Alfonso Dau & Randall Morck & Bernard Yin Yeung, 2021. "Business groups and the study of international business: A Coasean synthesis and extension," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(2), pages 161-211, March.
    2. Jean-Pascal Bassino & Thomas Lagoarde-Segot, 2015. "Informational efficiency in the Tokyo Stock Exchange, 1931–40," Economic History Review, Economic History Society, vol. 68(4), pages 1226-1249, November.
    3. John P. Tang, 2011. "Technological leadership and late development: evidence from Meiji Japan, 1868–1912," Economic History Review, Economic History Society, vol. 64(s1), pages 99-116, February.
    4. Randall Morck & Masao Nakamura, 2018. "Japan's Ultimately Unaccursed Natural Resources-financed Industrialization," NBER Chapters, in: Corporate Governance (NBER-TCER-CEPR Conference), National Bureau of Economic Research, Inc.
    5. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    6. Kanji Ishii, 2007. "Equity Investments and Equity Investment Funding in Prewar Japan: Comments on "Were Banks Really at the Center of the Prewar Japanese Financial System?"," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 77-88, March.
    7. Jean-Pascal Bassino & Thomas Lagoarde-Segot, 2013. "Trading patterns at the Tokyo Stock Exchange, 1931-1940," CEH Discussion Papers 012, Centre for Economic History, Research School of Economics, Australian National University.
    8. Thomas Lagoarde-Segot & Jean Pascal Bassino, 2012. "Informational dynamics and cross market linkages in the Tokyo Stock Exchange, 1931-40," Working Papers 12017, Economic History Society.

    More about this item

    Keywords

    Prewar Japan; Financial system; Banking; Stock markets; Corporate governance; Risk bearing; Information production;
    All these keywords.

    JEL classification:

    • 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
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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