Financial Turbulence and the Japanese Main Bank Relationship

Posted: 16 Feb 2004

See all articles by Mark M. Spiegel

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Abstract

Under the Japanese "main bank" relationship, a bank holds equity in a firm and plays a leading role in its decision-making and financing. This may leave a firm dependent on its main bank for financing due to its information advantage over other potential lenders. This dependency may be particularly severe during episodes of financial turbulence. We examine the sensitivity of returns on portfolios of Japanese firm equity to the returns of their main banks using a three-factor arbitrage-pricing model. We find no significant dependence when coefficient values are held constant over the entire sample. However, the data strongly suggest a structural break in the relationship subsequent to the last quarter of 1997, a turbulent period for Japanese financial markets. When a structural break is introduced, main bank sensitivity increases after the break, usually to significantly positive levels.

Keywords: Japan, banking, main bank

Suggested Citation

Spiegel, Mark M. and Yamori, Nobuyoshi, Financial Turbulence and the Japanese Main Bank Relationship. Available at SSRN: https://ssrn.com/abstract=502483

Mark M. Spiegel (Contact Author)

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

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