When Banks Become Pure Creditors: The Effects of Declining Shareholding by Japanese Banks on Bank Lending and Firms’ Risk-Taking

61 Pages Posted: 14 Aug 2023

See all articles by Arito Ono

Arito Ono

Chuo University

Katsushi Suzuki

Hitotsubashi University - Graduate School of International Corporate Strategy

Iichiro Uesugi

Hitotsubashi University

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Abstract

This study empirically examines the impact of an exogenous decrease in banks’ shareholding on bank loans and firms’ risk-taking, utilizing a regulatory change in Japan relating to banks’ shareholding as an instrument. We find that an exogenous reduction in a bank’s shareholding decreased the bank’s share of loans in the client firm’s total loans, while it increased the volatility of a firm’s return on assets. These findings are consistent with the theoretical prediction that banks hold equity claims over client firms to gain a competitive advantage by exploiting complementarity between shareholding and lending activities, and/or to mitigate shareholder–creditor conflict.

Keywords: bank shareholding, cross-selling, conflict of interests, dual holders

Suggested Citation

Ono, Arito and Suzuki, Katsushi and Uesugi, Iichiro, When Banks Become Pure Creditors: The Effects of Declining Shareholding by Japanese Banks on Bank Lending and Firms’ Risk-Taking. Available at SSRN: https://ssrn.com/abstract=4540272 or http://dx.doi.org/10.2139/ssrn.4540272

Arito Ono (Contact Author)

Chuo University ( email )

742-1 Higashinakano, Hachioji-shi
Tokyo 192-03, Tokyo 1920393
Japan

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Katsushi Suzuki

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

2-1-2 Hitotsubashi
Chiyoda-ku,
Tokyo, 101-8439
Japan

Iichiro Uesugi

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan
+81-42-580-8357 (Phone)

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