Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan

35 Pages Posted: 2 Feb 2004

See all articles by Masaharu Hanazaki

Masaharu Hanazaki

Development Bank of Japan

Toshiyuki Souma

Kyoto Gakuen University

Yupana Wiwattanakantang

National University of Singapore - Department of Finance

Date Written: January 2004

Abstract

We investigate the cause of this banking crisis that has jeopardized the stability of the financial and economic system since the 1990s. Following Hanazaki and Horiuchi (2001), we argue that the deficiency of effective corporate governance of banks in Japan has caused inefficient management. Our focus here is the role of large st shareholders who happen to be banks and insurers. We argue that these large shareholders appear to collude or conspire with management instead of being tough monitors. Consequently, the management became entrenched. Our empirical results show that during the 1980s these 'entrenched banks' extended more lending. Even after the collapse of the bubble in the 1990s, they did not dramatically undertake restructuring to cope with the accumulated bad loans.

Keywords: Corporate Governance, Ownership Structure, Managerial Entrenchment, Shareholders Activism

JEL Classification: G21, G33, G38

Suggested Citation

Hanazaki, Masaharu and Souma, Toshiyuki and Wiwattanakantang, Yupana, Silent Large Shareholders and Entrenched Bank Management: Evidence from the Banking Crisis in Japan (January 2004). Available at SSRN: https://ssrn.com/abstract=497402 or http://dx.doi.org/10.2139/ssrn.497402

Masaharu Hanazaki

Development Bank of Japan ( email )

9-1
Otemachi 1-chome Chiyoda-ku
Toyko, 100-0004
Japan
03-3244-1900 (Phone)

Toshiyuki Souma

Kyoto Gakuen University ( email )

Kyoto, 621-8555
Japan

Yupana Wiwattanakantang

National University of Singapore - Department of Finance ( email )

Business School
Mochtar Riady Building #7-44, 15 Kent Ridge Dri
Singapore, 117592
Singapore
65-6516-1912 (Phone)

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