What role has the “Main Bank” played in Japan?

Abstract

This paper investigates whether there has been risk-sharing between banks and borrowing companies through the main bank relationship in Japan. First, we evaluate the importance of risk-sharing by statistically examining the factors behind changes in main bank relationships. If the main bank relationship is based upon a mechanism of risk-sharing, changes in the relationship ought to be systematically related to changes in the risk that borrowing companies face. Second, we evaluate the importance of the main bank relationship as a means of risk-sharing by comparing the correlation between financial expenses and the operating profits of specific companies with the degree of their dependence on main banks. The first investigation indicates that growth by a company, the presence in its financial grouping of a large bank, and a history of past changes in its main bank, to differing extents all exert significant influence on changes in the main bank relationship. The main bank relationship in Japan does indeed have some empirical content. However, neither investigation supports the hypothesis of risk-sharing via the main bank relationship. J. Japan. Int. Econ., June 1988, 2(2), pp. 159180. Faculty of Economics, University of Tokyo, Bunkyo-ku, Tokyo 113,