Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firms’ top 10 shareholders, this paper explores the process of banks’ equity disposal. There is some evidence that, after fiscal 2001, banks’ sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank-proxied by firm-bank loan and shareholding ties-continues to be negatively associated with firm performance through fiscal 2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.
Keywords: Cross-shareholding; Main bank; Japanese banks; Firm performance
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.