Abstract
Based on a matched sample of Japanese small firms and main banks we investigate the bank-firm relationships in the early 2000s. We obtain new findings. First, even small firms with a main bank relation have multiple bank relationships. Second, firms tied with a financially weak main bank increase the number of bank relations. Third, longer duration of a main bank relation increases the number of bank relations. Moreover we find that firms with fewer bank relations pledge personal guarantees to their main banks and are charged a higher interest rate. This suggests that firms take actions against the monopoly power of a main bank.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Similar content being viewed by others
Notes
- 1.
Hoshi et al. (1991), using firm-level data, obtain the evidence that the firms affiliated with a main bank enjoy a lower external finance premium than independent firms.
- 2.
- 3.
Ogawa et al. (2007) examine the determinants of multiple bank relationships for large listed firms. Uchida et al. (2006) examine the effect of bank size on the strength of the bank-firm relationships which among other things is measured by the number of bank relations. They use the same data set as ours, but only the 2002 survey.
- 4.
Ono and Uesugi (2005) also examine the role of collateral and personal guarantees in bank-firm relationships using the SCFE. Their study relies on cross sectional data of the 2002 survey but ours are a panel data of 2001–2003.
- 5.
The firms are asked to choose only one bank as their main bank, so that there are no multiple main banks by the design of the survey.
- 6.
A personal guarantee is defined as a contractual obligation of the firm owner or other parties to repay the principal in case of default.
- 7.
We can identify the main bank of the sampled firms in the SCFE only in 2002, so that the firms of which the length of the main bank relation is less than two years are excluded since we cannot identify their main banks in 2001 or 2003.
- 8.
- 9.
- 10.
- 11.
The SCFE records industry code to which each sample firm belongs.
- 12.
The subscripts i and t refer to firm and period, respectively.
- 13.
Pledging collateral to a main bank is also useful information to gauge the impact of information monopoly on the terms of loan contract. However, information of collateral is not available in the 2003 SCFE.
- 14.
Industry dummy variables (DINDJ) as well as year dummies (DYEAR) are also included as explanatory variables.
- 15.
- 16.
For the probit random-effects model, the likelihood is expressed as an integral which is computed using a Gauss–Hermite quadrature.
- 17.
We apply the random-effects GLS model to the short-term interest rate equation so that it is consistent with the personal guarantee equation.
References
Billett MT, Flannery MJ, Garfinkel JA (1995) The effects of lender identity on a borrowing firmfs equity return. J Finance 50:699–718
Cameron CA, Trivedin PK (1998) Regression analysis of count data. Cambridge University Press, New York
Chemmanur TJ, Fulghieri P (1994) Reputation, renegotiation and the choice between bank loans and publicly traded debt. Rev Financ Stud 7:475–506
Detragiache E, Garella P, Guiso L (2000) Multiple vs. single banking relationships: theory and evidence. J Finance 55:1133–1161
Diamond DW (1984) Financial intermediation and delegated monitoring. Rev Econ Stud 51:393–314
Diamond DW (1991) Monitoring and reputation: the choice between bank loans and privately placed debt. J Polit Econ 99:699–721
Hausman J, Hall BH, Griliches Z (1984) Econometric models for count data with an application to the patents-R&D relationship. Econometrica 52:909–938
Horiuchi A (1993) An empirical overview of the Japanese main bank relationship in relation to firm size Rivista Internationale di Scienze Economiche e Commerciale 40:997–1018
Horiuchi T (1994) The effect of firm status on banking relationships and loan syndication. In: Aoki M, Patrick H (eds) The Japanese main bank system. Oxford University Press, Oxford, pp 258–294
Hoshi T, Kashyap AK, Scharfstein D (1990) The role of banks in reducing the costs of financial distress in Japan. J Financ Econ 27:67–88
Hoshi T, Kashyap AK, Scharfstein D (1991) Corporate structure, liquidity, and investment: evidence from Japanese industrial groups. Q J Econ 106:33–60
Hoshi T, Kashyap AK, Scharfstein D (1993) The choice between public and private debt: an analysis of post-deregulation corporate financing in Japan. NBER Working Paper, 4421
James C (1987) Some evidence on the uniqueness of bank loans. J Financ Econ 19:217–235
Kang J-K, Shivdasani A (1995) Firm performance, corporate governance and top executive turnover in Japan. J Financ Econ 38:29–58
Kang J-K, Shivdasani A (1997) Corporate restructuring during performance declines in Japan. J Financ Econ 46:29–65
Kaplan SN, Minton BA (1994) Appointments of outsiders to Japanese corporate boards: determinants and implications for managers. J Financ Econ 36:225–258
Miyajima H (1998) Sengo Nippon Kigyo niokeru Jyotai Izonteki Governance no Shinka to Henyo – Logit Model niyoru Keieisha Kotai Bunseki karano Approach – (The evolution and change of contingent governance structure in the J-firm system – An approach to presidential turnover and firm performance). Keizai Kenkyu 49:97–112 (in Japanese)
Morck R, Nakamura M (1999) Banks and corporate control in Japan. J Finance 54:319–339
Ogawa K, Sterken E, Tokutsu I (2007) Why do Japanese firms prefer multiple bank relationship? some evidence from firm-level data. Econ Syst 31:49–70
Ongena S, Smith DC (2000a) What determines the number of bank relationships? cross country evidence. J Financ Intermediation 9:26–56
Ongena S, Smith DC (2000b) Bank relationships: a review. In: Harker PT, Zenios SA (eds) Performance of financial institutions: efficiency, innovation, regulation. Cambridge University Press, Cambridge, pp 221–258
Ono A, Uesugi I (2005) The role of collateral and personal guarantees in relationship lending: evidence from Japan’s small business loan market. RIETI Discussion Paper Series 05-E-027
Rajan RG (1992) Insiders and outsiders: the choice between informed and arm’s length debt. J Finance 47:1367–1400
Sharpe SA (1990) Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships. J Finance 45:1069–1087
Sheard P (1994a) Bank executives on Japanese corporate boards. Bank Jpn Monetary Econ Stud 12:85–121
Sheard P (1994b) Main banks and the governance of financial distress. In: Aoki M, Patrick H (eds) The Japanese main bank system. Oxford University Press, Oxford, pp 188–230
Shockley RL, Thakor AV (1998) Bank loan commitment contracts: data, theory, and test. J Money Credit Bank 29:517–534
Uchida H, Udell GF, Watanabe W (2006) Bank size and lending relationships in Japan. RIETI Discussion Paper Series 06-E-029
Volpin PF (2000) Ownership structure, banks, and private benefits of control. IFA Working Paper, London Business School
Weinstein DE, Yafeh Y (1998) On the cost of a bank-centered financial system: evidence from the changing main bank relations in Japan. J Finance 53:635–672
Acknowledgements
An earlier version of this paper was presented at the seminar of the Research Project on Change in Financial and Industrial Structure of the Research Institute of Economy, Trade and Industry (RIETI), the workshop on Banking of the Centre for Research in Banking, Insurance and Finance (CIBIF) of the University of Groningen, and the Monetary Economics Workshop (MEW). We are grateful to Jan P.A.M. Jacobs and the participants of the seminar and workshop for helpful comments and suggestions. This research was partially supported by Grant-in-Aid for Scientific Research (16330038) from the Japanese Ministry of Education, Culture, Sports, Science and Technology from 2004 to 2006. Any remaining errors are the sole responsibility of the authors.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2010 Springer Physica-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Ogawa, K., Sterken, E., Tokutsu, I. (2010). Multiple Bank Relationships and the Main Bank System: Evidence from a Matched Sample of Japanese Small Firms and Main Banks. In: Calcagnini, G., Saltari, E. (eds) The Economics of Imperfect Markets. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2131-4_4
Download citation
DOI: https://doi.org/10.1007/978-3-7908-2131-4_4
Published:
Publisher Name: Physica-Verlag HD
Print ISBN: 978-3-7908-2130-7
Online ISBN: 978-3-7908-2131-4
eBook Packages: Business and EconomicsEconomics and Finance (R0)