When Japanese Banks Become Pure Creditors: The effects of declining shareholding by banks on bank lending and firms’risk-taking

Arito Ono, Katsushi Suzuki and Iichiro Uesugi

No 76, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Utilizing the regulatory change relating to banks' shareholding in Japan as an instrument, this study examines the causal effects of declining shareholding by banks on bank lending and firms’ risk-taking. Banks may hold equity claims over client firms for either of the following two reasons: (i) gaining a competitive advantage by exploiting complementarity between shareholding and lending activities, and (ii) mitigating shareholder–creditor conflict. Exogenous reduction in a bank’s shareholding would then impair the competitiveness of the bank’s lending activities and aggravate the risk-taking behavior of client firms. Using a firm–bank matched dataset for Japan’s listed firms during the period 2001–2006, we empirically test these two hypotheses and obtain the following findings. First, after a bank’s removal from the list of major shareholders of a client firm, the bank’s share of the firm’s loans decreases. Second, volatility of a firm’s return on assets increases after the top shareholding bank is removed from the list of the firm’s major shareholders. Third, the negative impact of a bank’s removal from the list of major shareholders on bank lending mainly applies to non-main banks, while the positive impact of the top shareholding bank’s removal from the list of major shareholders on firms’ risk-taking mainly applies to main banks.

Keywords: Bank shareholding; cross-selling; conflict of interest (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2018-03
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cfn and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/29135/wp076.pdf

Related works:
Working Paper: When Japanese Banks Become Pure Creditors: Effects of declining shareholding by banks on bank lending and firms' risk taking (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:76

Access Statistics for this paper

More papers in HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().