Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ASIAN DEVELOPMENT BANK INSTITUTE ASIAN DEVELOPMENT BANK INSTITUTEJust before Japan's financial crisis of 1927, nearly 90 percent of ordinary banks were connected to non-banking companies through the interlocking of their directors and auditors. Moreover, such interlocking was more pervasive in the large-sized banks. In many cases, interlocking of directors and auditors resulted from the fact that the banks and non-banking companies were owned by the same large shareholders.This finding is consistent with the accepted "organ bank" hypothesis which asserts that (i) banks were organically connected with industrial companies and so freely extended to them unsafe loans which went bad; and (ii) minority shareholders and depositors of such organ banks were therefore exploited by the core members of the corporate group, composed of the bank and industrial companies. The lessons from this important episode are particularly relevant to contemporary governance issues in Asian and other economies. Measuring the Extent and III PREFACEThe ADB Institute aims to explore the most appropriate development paradigms for Asia composed of well-balanced combinations of the roles of markets, institutions, and governments in the post-crisis period.Under this broad research project on development paradigms, the ADB Institute Research Paper Series will contribute to disseminating works-in-progress as a building block of the project and will invite comments and questions.

Interbank networks in prewar Japan: structure and implications

“…were more profitable and more liquid than banks outside networks. This might reflect the fact that larger banks were more profitable than smaller ones in prewar Japan (Okazaki et al 2005;etc. ).…”

“…First, there were indeed many corporate networks, in particular networks among banks. Many large investors held blocks of shares in and directorships of multiple banks, and as a result, banks connected with other banks through director interlocking and ownership to form networks (Okazaki et al 2005. Second, rich relevant data are available.…”

Listing Policy and Development of the Tokyo Stock Exchange in the Prewar Period

“…The mainstream view in the literature on economic history argued that the bank-centered system has a long history in Japan with its origin dating all the way back to the late nineteenth century, when Japan embarked upon its modern economic development (Bank of Japan (Institute for Monetary andEconomic Studies) 1986, 1995;Ishii 1997Ishii , 1999. Recent empirical studies have established, however, that the pre-war Japanese economic system in general was substantially different from the post-war system, and in particular the financial system was characterized by large and active securities market with shareholders (not bankers) playing the central role in corporate finance and governance (Fujino and Teranishi 2000;Miwa and Ramseyer 2002;Okazaki 1995Okazaki , 1999aOkazaki , 1999bOkazaki , 2000Okazaki et al 2005 ;Hoshi and Kashyap 2001;Teranishi 2003).…”

Informational efficiency in theTokyoStockExchange, 1931–40

“…Okazaki, Sawada, and Yokoyama, ‘Measuring’. The Showa financial crisis resulted in the bankruptcy of thirty‐seven banks, and the collapse of the Suzuki zaibatsu .…”