Why do Japanese regional banks issue subordinated debts?

Naohiko Baba and Masakazu Inada

Japan and the World Economy, 2009, vol. 21, issue 4, 358-364

Abstract: This paper empirically investigates the determinants of subordinated debt issuance by Japanese regional banks during the period of 2000-2007 using a probit model. The empirical results suggest the following. (i) Throughout the period, Japanese regional banks with a lower capital ratio tended to have a higher incentive to issue subordinated debts due possibly to their counting as Tier 2 capital under the Basel Accord. (ii) During the period of banking instability (2000-2003), subordinated debt investors tended to use financial variables such as the non-performing loan ratio, ROA, and ROE to screen good banks. (iii) During the period after the banking system regained stability (2004-2007), investors tended to pay less attention to the above variables due chiefly to the mitigated default risk of these banks.

Keywords: Subordinated; debt; Japanese; banks; Basel; Accord; Market; discipline; Non-performing; loan; problem (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:21:y:2009:i:4:p:358-364

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