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Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan

Author

Listed:
  • Hanazaki, Masaharu
  • 花崎, 正晴
  • ハナザキ, マサハル
  • Souma, Toshiyuki
  • 相馬, 利行
  • ソウマ, トシユキ
  • Wiwattanakantang, Yupana
  • ウィワッタナカンタン, ユパナ

Abstract

We investigate the cause of this banking crisis that has jeopardized the stability of the financial and economic system since the 1990s. Following Hanazaki and Horiuchi (2001), we argue that the deficiency of effective corporate governance of banks in Japan has caused inefficient management. Our focus here is the role of largest shareholders who happen to be banks and insurers. We argue that these large shareholders appear to collude or conspire with management instead of being tough monitors. Consequently, the management became entrenched. Our empirical results show that during the 1980s these "entrenched banks" extended more lending. Even after the collapse of the bubble in the 1990s, they did not dramatically undertake restructuring to cope with the accumulated bad loans.

Suggested Citation

  • Hanazaki, Masaharu & 花崎, 正晴 & ハナザキ, マサハル & Souma, Toshiyuki & 相馬, 利行 & ソウマ, トシユキ & Wiwattanakantang, Yupana & ウィワッタナカンタン, ユパナ, 2004. "Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan," CEI Working Paper Series 2004-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2004-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance; Ownership Structure; Managerial Entrenchment; Shareholders Activism;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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