Does Relationship Banking Matter? Japanese Bank-Borrower Ties in Good Times and Bad

50 Pages Posted: 5 Sep 2003  

Yoshiro Miwa

Osaka Gakuin University

J. Mark Ramseyer

Harvard Law School

Date Written: August 2003

Abstract

The Japanese "main bank system" figures prominently in the recent literature on "relationship banking." By most accounts, the main bank epitomizes relationship finance: traditionally, every large Japanese firm had one, and that bank monitored the firm, participated in its governance, acted as the delegated monitor for other creditors, and rescued the firm if it fell into financial distress. Yet all this has begun to change, continue these accounts. Japan deregulated its financial markets in the 1980s, and many firms abandoned their relational lender for market finance. As the main banks then lost their ability to constrain firms - as relationship banking unraveled - the firms gambled in the stock and real estate bubbles, the bubbles burst, and the firms threw the country into recession.

Using financial and governance data from 1980 through 1994, we show that none of this is true. The accounts of the Japanese main bank instead represent fables, stories we collectively recite because they so conveniently illustrate the theories and models we hope to develop. Whether during the 1980s boom or the 1990s recession, they bore no resemblance to any aspect of Japanese corporate finance or governance.

JEL Classification: G21, G32, G33, G38

Suggested Citation

Miwa, Yoshiro and Ramseyer, J. Mark, Does Relationship Banking Matter? Japanese Bank-Borrower Ties in Good Times and Bad (August 2003). Harvard Law and Economics Discussion Paper No. 433. Available at SSRN: https://ssrn.com/abstract=441981 or http://dx.doi.org/10.2139/ssrn.441981

Yoshiro Miwa

Osaka Gakuin University ( email )

2-36-1 Kishibe-Minami
Suita, Osaka 5645811
Japan

J. Mark Ramseyer (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-4878 (Phone)
617-496-6118 (Fax)

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