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Banks and Corporate Control in Japan

Authors


  • Morck is from University of Alberta, Edmonton, and Nakamura is from University of British Columbia, Vancouver. This research was supported in part by the Social Sciences and Humanities Research Council of Canada. Earlier versions of this paper were presented at the University of Alberta, the University of British Columbia, the University of Calgary, Hitotsub-ashi University, the University of Minnesota, Niigata University, Rochester University, Rutgers, Tokyo University, Tsukuba University, the University of Waterloo, the Bank of Canada, the Bank of Japan, the C.D. Howe Institute, the Japan Development Bank, the French Finance Association, the Northern Finance Association, and the National Bureau of Economic Research. We are grateful for comments made by participants in these seminars. We are especially grateful for suggestions by Steve Kaplan, David Scharfstein, René Stulz, Adrian Tschoegl, Terry Ursacki, Michael Weisbach, and two anonymous referees. All remaining errors are the responsibility of the authors.

Abstract

Using a large sample of Japanese firm level data, we find that Japanese banks act primarily in the short term interests of creditors when dealing with firms outside bank groups. Corporate control mechanisms other than bank oversight appear necessary in these firms. When dealing with firms in bank groups, banks may act in the broader interests of a range of stakeholders, including shareholders. However, our findings are also consistent with banks “propping up” troubled bank group firms. We conclude that bank oversight need not lead to value maximizing corporate governance.

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