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Working Paper
Market price accounting and depositor discipline in Japanese regional banks
We examine the determinants of Japanese regional bank decisions concerning pricing unrealized losses or gains to market. We also examine the impact of these decisions on the intensity of depositor discipline, in the form of the sensitivity of deposit growth to bank financial conditions. To obtain consistent estimates of depositor discipline, we first model and estimate the bank pricing-to-market decision and then estimate the intensity of depositor discipline after conditioning for that decision. We find that banks were less likely to price to market the larger were their unrealized ...
Working Paper
Is it true that insurers benefit from a catastrophic event? Market reactions to the 1995 Hanshin-Awaji earthquake
Previous studies, investigating how the market in general viewed the impact of a big earthquake (e.g., the 1989 Loma Prieta earthquake in the San Francisco Bay Area) on insurance firm values, found a positive reaction of insurers' stock prices. This "gaining from loss" may be caused by the subsequent increased demand for insurance coverage. This paper investigates the impact of the 1995 Hanshin-Awaji earthquake on Japanese insurers' value. Contrary to the results for U.S. earthquakes, we find significant negative stock price reactions. Furthermore, our results demonstrate that Japanese ...
Working Paper
Japanese management views on overseas exchange listings: survey results
Previous empirical studies cast a doubt on a positive effect of overseas listings on stockholders' wealth. We should investigate reasons for the steady growth of overseas listings other than the stockholders' wealth maximization. However, we have little information about management views on overseas listings except regarding U.S. firms. In this paper, we used a mail questionnaire to obtain information on overseas listing decisions of Japanese companies. As our survey shows, Japanese managers regard the disclosure and financial reporting requirements as the primary obstacles to overseas ...
Working Paper
Financial turbulence and the Japanese main bank
The Japanese "main bank" relationship, under which a bank holds equity in a firm and plays a leading role in its decision-making and financing, may leave a firm dependent on its main bank for financing due its information advantage over other potential lenders. While alternative sources of finance may mitigate this dependency, it may resurface during episodes of financial turbulence. ; We examine the sensitivity of returns on portfolios of Japanese firm equity to the returns of their main banks using a three-factor arbitrage-pricing model. We find no significant dependence on main bank ...
Working Paper
The evolution of \"too-big-to-fail\" policy in Japan: evidence from market equity values
This paper examines the evidence in bank equity markets concerning bank regulatory policies in Japan over the turbulent 1995-1998 period. We find that investors grouped banks according to regulatory status in assessing whether a bank was currently treated as "too-big-to-fail." when a failure of a bank of certain regulatory status was announced, excess returns on other banks of that regulatory status and below displayed heightened sensitivity to adverse news. This suggests that investors updated their beliefs about which classes of banks were protected by too-big-to-fail policies over the ...
Working Paper
Asset price declines and real estate market illiquidity: evidence from Japanese land values
We develop an overlapping generations model of the real estate market in which search frictions and a debt overhang combine to generate price persistence and illiquidity. Illiquidity stems from heterogeneity in agent real estate valuations. The variance of agent valuations determines how quickly prices adjust following a shock to fundamentals. We examine the predictions of the model by studying price depreciation in Japanese land values subsequent to the 1990 stock market crash. Commercial land values fell much more quickly than residential land values. As we would posit that the variance of ...
Working Paper
Determinants of voluntary bank disclosure: evidence from Japanese Shinkin banks
Disclosure is widely regarded as a necessary condition for market discipline in a modern financial sector. However, the determinants of disclosure decisions are still unknown, particularly among banks. This paper investigates the determinants of disclosure by Japanese Shinkin banks in 1996 and 1997. This period is unique because disclosure by these banks was voluntary during this time. We find that banks with more serious bad loan problems, more leverage, less competitive pressure, and smaller banks were less likely to choose to voluntarily disclose. These results suggest that there may be a ...
Working Paper
Quantitative easing and Japanese bank equity values
One of the primary motivations offered by the Bank of Japan (BOJ) for its quantitative easing program -- whereby it maintained a current account balance target in excess of required reserves, effectively pegging short-term interest rates at zero -- was to maintain credit extension by the troubled Japanese financial sector. We conduct an event study concerning the anticipated impact of quantitative easing on the Japanese banking sector by examining the impact of the introduction and expansion of the policy on Japanese bank equity values. We find that excess returns of Japanese banks were ...
Working Paper
Loan officers and relationship lending to SMEs
Previous research suggests that loan officers play a critical role in relationship lending by producing soft information about SMEs. For the first time, we empirically confirm this hypothesis We also examine whether the role of loan officers differs from small to large banks as predicted by Stein (2002). While we find that small banks produce more soft information, the capacity and manner in which loan officers produce soft information does not seem to differ between large and small banks. This suggests that, although large banks may produce more soft information, they likely tend to ...
Working Paper
The impact of Japan's financial stabilization laws on bank equity values
In the fall of 1998, two important financial regulatory reform acts were passed in Japan. The first of these acts, the Financial Recovery Act, created a bridge bank scheme and provided funds for the resolution of failed banks. The second act, the Rapid Revitalization Act, provided funds for the assistance of troubled banks. While both of these acts provided some government assistance to the banking sector, they also called for reforms aimed at strengthening the regulatory environment. ; Using an event study framework, this paper examines the evidence in equity markets concerning the ...