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On the Costs of a Bank‐Centered Financial System: Evidence from the Changing Main Bank Relations in Japan
Author(s) -
Weinstein David E.,
Yafeh Yishay
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.254893
Subject(s) - profitability index , business , financial system , chinese financial system , market power , liberalization , capital (architecture) , monetary economics , bank regulation , finance , capital market , economics , market economy , china , archaeology , political science , law , history , monopoly
We examine the effects of bank–firm relationships on firm performance in Japan. When access to capital markets is limited, close bank–firm ties increase the availability of capital to borrowing firms, but do not lead to higher profitability or growth. The cost of capital of firms with close bank ties is higher than that of their peers. This indicates that most of the benefits from these relationships are appropriated by the banks. Finally, the slow growth rates of bank clients suggest that banks discourage firms from investing in risky, profitable projects. However, liberalization of financial markets reduces the banks' market power.