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Bank Ties and Firm Performance in Japan: Some Evidence since Fiscal 2002

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  • Patrick McGuire

    (Senior Economist, Monetary and Economic Department, Bank for International Settlements (E-mail: patrick.mcguire@bis.org))

Abstract

Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firms' top 10 shareholders, this paper explores the process of banks' equity disposal. There is some evidence that, after fiscal 2001, banks' sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank-proxied by firm-bank loan and shareholding ties-continues to be negatively associated with firm performance through fiscal 2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.

Suggested Citation

  • Patrick McGuire, 2009. "Bank Ties and Firm Performance in Japan: Some Evidence since Fiscal 2002," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 99-142, November.
    • Handle: RePEc:ime:imemes:v:27:y:2009:i:1:p:99-142
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    File URL: https://www.imes.boj.or.jp/research/papers/english/me27-7.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rod Tyers & Jenny Corbett, 2012. "Japan's economic slowdown and its global implications: a review of the economic modelling," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 26(2), pages 1-28, November.

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    More about this item

    Keywords

    Cross-shareholding; Main bank; Japanese banks; Firm performance;
    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
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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