When banks become pure creditors: The effects of declining shareholding by Japanese banks on bank lending and firms’ risk-taking

Arito Ono, Katsushi Suzuki and Iichiro Uesugi

Journal of Financial Stability, 2024, vol. 73, issue C

Abstract: This study empirically examines the impact of an exogenous decrease in banks’ shareholding on bank loans and firms’ risk-taking, utilizing a regulatory change in Japan relating to banks’ shareholding as an instrument. We find that an exogenous reduction in a bank’s shareholding decreased the bank’s share of loans in the client firm’s total loans, while it increased the volatility of a firm’s return on assets. The reduction in a bank’s shareholding did not affect firm risk as perceived by equity investors or its borrowing terms. These findings are consistent with the prediction that banks hold equity claims over client firms to gain a competitive advantage, and are weakly compatible with the prediction that banks’ shareholding mitigates shareholder–creditor conflict.

Keywords: Bank shareholding; cross-selling; conflict of interests; dual holders (search for similar items in EconPapers)
JEL-codes: G21 G32 G34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:73:y:2024:i:c:s1572308924000792

DOI: 10.1016/j.jfs.2024.101294

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