Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/11650
Title: Understanding the rise and decline of the Japanese main bank system : the changing effects of bank rent extraction
Authors: Wu, X
Yao, J 
Keywords: Bank risk
Financial deregulation
Investment efficiency
Main bank
Rent extraction
Issue Date: 2012
Publisher: Elsevier Science Bv
Source: Journal of banking and finance, 2012, v. 36, no. 1, p. 36-50 How to cite?
Journal: Journal of Banking and Finance 
Abstract: This paper shows how main bank rent extraction affects corporate decisions about investment and financing during financial regulatory reform. Our model predicts that limited loanable funds can initially contain main bank controlled overinvestment, even when new equity is available to the firm. Abundant funds facilitate overinvestment to the detriment of firm profitability. A shift of control rights back to the firm due to financial deregulation produces an "equity for upside potential and bank debt for downside risk" bias against the banks. A stock market and real estate boom in Japan made it harder than ever for the banks to diversify risk. The insights from this analysis help explain why Japan's main bank system was beneficial in the (capital constrained) postwar period but became harmful during the (capital abundant and even bubbly) 1980s, and why the adverse shocks of the post-deregulation 1990s had such severe effects on the banking system.
URI: http://hdl.handle.net/10397/11650
DOI: 10.1016/j.jbankfin.2011.06.003
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