Bank Executives on Japanese Corporate Boards
This paper adds to the growing empirical literature on the role of banks in corporate monitoring and governance in Japan by analyzing the role of bank executives on Japanese corporate boards. Japanese corporate boards comprise the top executive officers of the corporation and the majority of directors are internally promoted managerial employees. However, data is assembled showing that new entrants to the board, or outside directors as defined in this paper, come mainly from firms and banks with leading equity and lending positions in the firm. A probit model of whether a firm has bank executives on its board or not is estimated for all first-section listed firms. It is found that firms are more likely to have bank executives on their board the more they rely on bank borrowings, the larger the loan share of the top lender, and the greater the discrepancy in loan shares among top lenders, and less likely when there is a dominant shareholder, when there is residual family control over management, and the larger, older, and more profitable they are. Overall the results provide support for the thesis that the movement of executives from banks to corporate boards is an integral aspect of the operation of the secondary top executive managerial labor market in Japan and closely related to the role of banks in capital market oversight and governance.
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