TAILIEUCHUNG - Does Relationship Banking Matter? The Myth of the Japanese Main Bank

In some countries, the possibility of women migrating may be influenced by religious and other sociocultural constraints. A study of Asian migration demonstrated that while women dominate migration flows from countries such as the Philippines and Sri Lanka, sociocultural factors in countries such as Bangladesh and Pakistan apparently limit female emigration (Battistella 2003, 1-33). While highlighting the fact that women migrants may become ‘empowered’, one also has to keep in mind that migrating abroad for many women means facing long working hours, increased financial obligations (including remittances to relatives left behind) and new family responsibilities (. raising their children in the country of settlement or dealing with guilt and worry for having left their. | Journal of Empirical Legal Studies Volume 2 Issue 2 261-302 July 2005 Does Relationship Banking Matter The Myth of the Japanese Main Bank Yoshiro Miwa and J. Mark Ramseyer The Japanese main bank system figures prominently in the recent literature on relationship banking for by most accounts the system epitomizes relationship finance. Traditionally according to the literature every large Japanese firm had a long-term relationship with one bank that served as its main bank. That main bank monitored the firm intervened in its governance through board appointments acted as the delegated monitor for other creditors and agreed to rescue the firm if it fell into financial distress. As Japan deregulated its financial markets in the 1980s however these firms abandoned their relational lender for market finance. As main banks then lost their ability to constrain the firms as relationship banking unraveled the firms gambled in the stock and real estate bubbles and threw the country into recession. Using financial and governance data from 1980 through 1994 we show that none of this is true. The accounts of the Japanese main bank instead represent fables mythical stories scholars recite because they so conveniently illustrate theories and models in vogue. According to modern theory banks mitigate adverse selection by screening applicants for loans and do the same for moral hazard by monitoring borrowers. Although investors could do both themselves to exploit scale economies they delegate the functions to banks. Because actions to which banks and borrowers would like to commit ex ante sometimes involve strate- Address correspondence to Yoshiro Miwa University of Tokyo Faculty of Economics 7-3-1 Hongo Bunkyo-ku Tokyo fax 03-5841-5521 email miwa@ or to J. Mark Ramseyer Harvard Law School Cambridge MA 02138 fax 617-496-6118 email ramseyer@. We received helpful comments and suggestions from Hidehiko Ichimura Isao Ishida Nobuhiro Kiyotaki Takashi Obinata

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