Purifying Japan's Banks: Issues and Implications

Randall Morck and Bernard Yeung
Additional contact information
Bernard Yeung: Stern School of Business New York University 44 West 4th Street, Suite 7-190, New York, NY 10012-1126, USA.

Asian Economic Papers, 2006, vol. 5, issue 1, 1-32

Abstract: We use a simple real options framework and empirical data to establish that although Japanese banks hold borrowers' shares, their interest is more along the lines of a contractual claimant than a residual claimant of corporations. We then explain why the Japanese model of corporate governance was useful during the "catching-up" growth of that country's postwar reconstruction decades but became problematic subsequently. The interests of shareholders, creditors, workers, and managers are more readily aligned because such growth entails investment in knowntechnology physical-capital-intensive projects with highly predictable cash flows. Once firms are on the technological frontier, "keeping-up" growth requires risk taking and a tolerance for "creative destruction." This is better accommodated by entrusting corporate governance to firms' true residual claimants, their shareholders. (c) 2006 The Earth Institute at Columbia University and the Massachusetts Institute of Technology.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/asep.2006.5.1.1 link to full text (text/html)

Related works:
Working Paper: Purifying Japan's Banks: Issues and Implications (2006)
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:tpr:asiaec:v:5:y:2006:i:1:p:1-32

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sungbae An, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by The MIT Press ().