On the costs of a bank-centered financial system: Evidence from the changing main bank relations in Japan

David E. Weinstein, Yishay Yafeh

Research output: Contribution to journalArticlepeer-review

478 Scopus citations

Abstract

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.

Original languageAmerican English
Pages (from-to)635-672
Number of pages38
JournalJournal of Finance
Volume53
Issue number2
DOIs
StatePublished - Apr 1998

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