Banks as lenders and shareholders: Evidence from Japan

Wenlian Gao

Pacific-Basin Finance Journal, 2008, vol. 16, issue 4, 389-410

Abstract: This paper examines the effects of the main bank's equity-debt structure, (i.e., equity stakes and debt claims) on firm performance and financial policies in Japan over the period 1977-1987. Results show that firms with main bank equity stakes have lower performance than those without. However, among firms with main bank equity stakes, the equity-debt structure of claims has a positive effect on firm performance. The positive effect of the main bank's equity-debt structure is found to be greater in group-affiliated firms than in independent firms. The main bank maximizes its own interests by charging a higher interest rate when its equity stakes are relatively less than its debt claims and by prompting firms to pay more dividends when its equity stakes are relatively high.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:16:y:2008:i:4:p:389-410

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