Banks and corporate control in Japan

Abstract

Using a large sample of Japanese firm level data, we find that Japanese banks act primarily in the short term interests of creditors when dealing with firms outside bank groups. Corporate control mechanisms other than bank oversight appear nec-essary in these firms. When dealing with firms in bank groups, banks may act in the broader interests of a range of stakeholders, including shareholders. However, our findings are also consistent with banks “propping up ” troubled bank group firms. We conclude that bank oversight need not lead to value maximizing corpo-rate governance. POOR LIQUIDITY AND CASH F LOW PREDICT banker appointments to the boards of bank group firms; poor share price performance does not. When dealing with firms in bank groups, banks act in the broader interests of a range of stakeholders, including shareholders. Poor stock market performance, job creation, liquidity, and cash f low all predict banker appointments to bank group firms. We argue that Japanese banks ’ dual role as creditors and share