ABS Issuance and Lending Attitude of Banks

This paper investigates whether an increase in ABS issuance, or securitized products, by leasing companies has been influenced by Japanese banks’ tightened lending attitudes in 1990s. Our focus is in particular to examine the importance of asset securitization for leasing companies when bank lending is decreased. Leasing companies have been major originators and equipment lease receivables have been the most commonly securitized assets in Japanese ABS market. Leasing companies, however, have heavily relied on bank lending as their funding measures that the effect of credit crunch to the industry is examined. The conclusions in this paper are the following; (1) Disintermediation of bank lending tends to lead an increase in ABS issuance in the market. It is also obtained that banks’ lending attitude is granger-cause securitization issuance of leasing companies. (2) The issuance by leasing companies significantly increases in September mid-year and March end-year periods, the first and the third quarters. (3) CP issuance seems to be an alternative method of ABS issuance, however bond issuance doesn’t. No significant relation is observed between ABS and corporate bond issuance.Asset Backed Securities, Bank lending

Japan Premium and Stock Prices: Two Mirrors of Japanese Banking Crises

This paper investigates how financial troubles among Japanese banks in the second half of the 1990s were viewed by the market. Two indicators, the Japan premium and the stock price index of the banking sector in Tokyo, were examined. Econometric tests were employed to see whether different kinds of investors saw the banking crisis differently, and what kind of news had most impacts on market pricing of Japanese banks. Our findings are as follows. (1) Factors that pushed up the Japan Premium most were the Daiwa Bank incidence in the fall of 1995, failures of large financial institutions in November 1997, and uncertainties in the resolution of banking problem in fall 1998. (2) The bank stock index declined (in relative to the general stock index) most in bank failures, in particular by the Yamaichi Securities failure in November 1997. (3) Individual failures of financial institutions may or may not have impact on other banks' stock prices. (4) The bank stock index and the general stock index historically had co-movements, but the structural changes occurred in the co-movement relationship at around the summer of 1995. (5) News that affected Japan premium and bank stocks are sometimes different. The bank stock price index Granger-causes the Japan premium, but the reverse does not hold. The result is consistent with the view that Japan premium reflects both domestic structural problems and banks' liquidity problem in the euro dollar market, while the bank stock prices reflect the former only.

Market Evaluations of Banking Fragility in Japan: Japan Premium, Stock Prices, and Credit Derivatives

This paper investigates movements of market indicators of banking fragility, namely, Japan premium, stock prices, and credit derivative spreads of Japanese banks. Although the Japan premium in the euro-dollar market seemed to have virtually disappeared since April 1999, credit and default risks of Japanese banks has not necessarily disappeared. Other indicators show varying degrees of fragility among Japanese banks in 1998-2001. Banking stock prices continue to slide compared to the market-wide stock price index. From pricing of credit derivatives, default probabilitie of banks can be etracted. Correlations among indicators were high both in the first period and in the second period; Credit default swap (CDS) premium explains Japan premium with a significant, positive coefficient. The higher the CDS is, lower go the stock prices. Before the capital injection of 1999, the markets were more sensitive to bank vulnerability and higher premiums were required

Did Mergers Help Japanese Mega-Banks Avoid Failure? Analysis of the Distance to Default of Banks

In the late 1990s, several large Japanese banks failed for the first time in its postwar history. As the financial environment was deteriorating further, several remaining banks decided to merge among themselves, presumably, to make their operations more efficient to avoid failures. This paper defines, calculates and analyzes the distance to default (DD), a concept of credit risk in corporate finance, of Japanese large banks. The DD helps us to answer a question whether mergers in the late 1990s and 2000s made the merged banks financially more robust as intended. The novelty of the paper is to develop a method of analyzing the DD for banks that experience a merger, and to apply the method to the Japanese banking data. Our findings include: (1) A merged bank fundamentally inherits financial soundness of pre-merged banks, without adding special value from the merger. A merger of sound (unsound) banks produced a sound (unsound, respectively) merged financial institution; and (2) In some cases, a merged bank experienced a negative DD right after the merger. The findings are consistent with a view that a primary objective of a merger was to take advantage of the perceived too-big-to-fail policy, rather than to pursue a radical reform. Another interpretation is that mergers with intention of enhancing efficiency resulted in failed implementation of true operational efficiency, such as quick integration of computer operation systems and elimination of duplicating branches.

Is the Distance to Default a Good Measure in Predicting Bank Failures? Case Studies

This paper examines the movements of the Distance to Default (DD), a market-based measure of corporate default risk, of eight failed Japanese banks in order to evaluate the predictive power of the DD measure for bank failures. The DD became smaller in anticipation of failure in many cases. The DD spread, defined as the DD of a failed bank minus the DD of sound banks, was also a useful indicator for deterioration of a failed bank’s health. For some banks, neither the DD nor the DD spread predicted the failures. However, those results were partly due to lack of transparency in financial statements and disclosed information.

Mega-злиття економічні причини і виступи: уроки з Японії

This study examines short- and long-term performances of consolidations of larger scale banks. Japan experienced its banking crisis in late 1990s, a decade prior to global financial crisis in later 2000s. Large scale bank consolidations took place after the global financial crisis in the US and Europe and some of those consolidations were criticized as aiming at “too big to fail”

Ownership concentration and dividend policy in Japan

Purpose – The purpose of this paper is to test two agency-based hypotheses regarding the effect of ownership concentration on dividend policy using a large sample of Japanese firms. Design/methodology/approach – Level regressions associating payout rates to ownership concentration are run. Different measures of payout are used to ensure the robustness of our findings. Endogeneity of ownership is taken into account. The choice of instruments is carefuly motivated and their statistical power and exogeneity are checked. How ownership concentration affects the propensity to increase dividends following changes in variables correlated with free cash flows is also examined. Findings – The results are consistent with rent extraction by large shareholders. Ownership concentration is associated with significantly lower dividends in proportion to earnings as well as relative to book equity. An endogenous relation between ownership concentration and dividend payout is established, but the results are not statistically different. Firms with concentrated ownership are also less likely to increase dividends when earnings increase or when debt decreases. Practical implications – Large shareholders do not appear to use dividend policy to remove excess cash and impose greater financial discipline on managers. Instead, the results underline the conflicts of interest between majority and minority shareholders. Originality/value – The endogeneity of ownership is controlled for using firm age and the industry's average ownership concentration as instruments. The effect of ownership concentration on dividend changes following changes in proxies for free cash flows is also analyzed.Corporate finances, Corporate governance, Distribution, Dividends, Japan