The Cost of Capital and the Multi-Nationalization of Japanese Banking

Abstract

This study tests the hypothesis that a bank's cost of capital, proxied by the dividend yield on its own stock, is an important factor in the expansion of its overseas activities. The results support the hypothesis. Additional factors identified as important are the growth of Japanese direct foreign investment, which proxies the expansion overseas of Japanese banks' domestic customers, the yen exchange rate, and the deregulation of Japanese financial markets with the consequent increase in the permissible activities of Japanese banks abroad.[G21]