Small Local Banks Research Articles

Bank-Firm Relation Changes and Earnings Quality - An Analysis on Italian Small-Medium Sized Companies

In the last years banks and firms relationship in Italy has experienced deep changes due to a new revised national and international regulation and to an increasing globalization of economic environment. These evolutions imply a new bank-firm relationship with a deeper disclosure, in a perspective of partnership between them. In this scenario, Basel 1 and 2 accords have been contributing to revise bank-firm relationship, moreover in the specific perspective of small-medium sized firms. In Italy, the evolution of bank-firm relation has been also influenced by an intensive banking system restructuring process, characterized by big mergers and small local banks aggregations. This paper focuses on bank-firm relation impact on small-medium sized firms financial reporting quality. The analysis empirically examines some proxies for earnings quality for a sample of Italian small-medium sized firms over 10 years period. Earnings quality metrics are based on the relation between working capital accruals and cash flows, following Dechow and Dichev (2002) approach. Across these metrics we will perform a cross-sectional analysis on the relation between earnings quality and some variables regarding banks and firms governance, controlling for regulation changes and other variables such as size, sector etc.

Evolution of the Economic System in Japan (review)

Reviewed by: Evolution of the Economic System in Japan Carl Mosk (bio) Evolution of the Economic System in Japan. By Juro Teranishi. Edward Elgar, Cheltenham, 2005. xiv, 343 pages. $120.00. The political economy of Japan's high-growth period between the mid-1950s and the early 1970s has been the subject of heated debate in academic and policy circles. Was it efficient? What were its main characteristics? When and why did the system come into being? Was its long-run legacy the retardation and stagnation of the 1990s and early 2000s? In this volume, a translation of his book Nihon no keizai shisutemu (Iwanami Shoten, 2003), Teranishi provides bold answers, couching his arguments in a detailed historical account of Japan's political economy since the Meiji Restoration. The gist of his argument is that the system of the high-growth era emerged because a very different system—which he dubs the Meiji-Taisho system—deteriorated. The key institutions of the high-growth era only emerged during the period 1937–47. Like the institutions of the Meiji-Taisho system that began decaying—becoming dysfunctional in both the economic and political realms—during the 1920s, the institutions of the high-growth period have outlived their usefulness. They should be consigned to the dustbin of history. To make this argument, Teranishi constructs a model of evolutionary change for the Japanese economy. In the first section of the volume—chapters one and two—he lays out the model by arguing that the rules of a system ultimately change when three conditions are met: (1) the economic costs of maintaining it are too high, (2) the political costs of maintaining it are too high, and (3) the rules become incompatible with prevailing social mores. There are three major subsystems to political economy: the division of labor between the private sector and government, the institutions of the private sector, and the interface of governmental and private-sector institutions giving rise to policies. When the costs of keeping these subsystems functional grow, and when norms regarding the utility of the key features of the subsystems change, system atrophy sets in. A new system emerges through a gestation period potentially painful and protracted. This argument is general, applicable to any political economic system. To make it specific to Japan, Teranishi puts forward three constraining, [End Page 577] exogenous conditions. First, Japan was involved in catch-up growth until the late 1970s, borrowing technology from Western countries. Second, prior to the 1980s, Japan was the only Asian country to successfully industrialize; its geographic isolation encouraged the development of a "full set" industrial structure, with every major subsector of manufacturing appearing in the set. And third, the major economic paradigms put forward internationally for analyzing market-oriented economies shifted, from an emphasis on pure laissez-faire prior to World War I to doctrines embracing limited government intervention in economic affairs, especially working through the agency of monetary, fiscal, and welfare (income redistribution) policies. In Part II (chapters three through five) of the volume, Teranishi explains how the Meiji-Taisho system operated. He argues that it was private-market oriented and government was relegated to the shadows. It was dominated by wealthy political and economic elites in the private sector: rural landlords and merchants (the meibōka) played a major role in securing loans from small local banks for small companies; a small cadre of wealthy investors gobbled up the stocks issued by large nationwide enterprises that relied on internal accumulation of capital from profits or the equity market to fund their growth; and former samurai filled many of the managerial posts in the emerging big-business sector. The main interface between the government and the private sector was decentralized, mainly operating at the local level. The political parties emerging in the late nineteenth and early twentieth centuries leaned on the meibōka rural elite who were more than willing to cooperate; the meibōka lobbyied for infrastructure investment (roads, railways, harbors) in their local districts in return for their efforts in drumming up votes. Teranishi argues that structural change set off by economic development and competition between the political parties undermined the functionality of the system...

The Locational Process of Banks in the Kanto District, Japan, 1868-1907

The purpose of this paper is to consider the locational process of banks in order to make clear the regional structure of the Kanto District during Meiji period.Banks played an important role in the process of modernization in Japan. That is, they were established in the stage when industrial and commercial capitals had not yet sufficiently been accumulated. For this reason, they were merely loan offices rather than commercial banks. These loan offices or banks were closely related with local industries and had exerted their impacts on the characterization of regional structures.For the method of the present study, the writer examined both the head offices and branches of banks and compared them for 1887, 1897, and 1907 in terms of their spatial distributions and temporal changes. In that case, a central place system as an effective framework of analysis for the regional structures was related to the locational process of banks. Now, in order to find the central place system, the writer chiefly used the data of number of merchants as of 1907. As population size of urban centers showed only slight change in general for the period 1868-1907, so the data for 1907 might stand good for the remaining years of the period.The results obtained are summarized as follows: There existed various types of locational process of banks due to special circumstances in the advancement of capitalism in Japan and also to differences of regional conditions.1) The heierarchical effect of urban centers was observed on the locational process of banks in Japan during Meiji period, although it was not always remarkably recognizable. That is, the location of head offices of banks and their branches tended to begin with the higher order of places and then with the lower order of places. But, both the vicinity of Tokyo and Yokohama and such central places with special functions as hot spring towns, port towns, mining and industrial towns, and so on, showed time lag in the locational process of banks as compared with that of the same order of places in other areas.2) Those banks are classified into three groups on the basis of their characteristics, each of which shows different locational process from others. The first group, national banks were established mainly by former-samurais in urban centers that were formerly castle-towns, gradually grew in competition with other private banks and expanded their spheres of inluence. The second group, branches of small local banks were established by rich landowners and merchants in localized areas in various places throughout the Kanto district. Though rises and falls of small local banks were often repeated, a few banks grew and expanded the networks of their branches. And the third group, very large banks by the privileged merchants through Edo and Meiji periods and large merchants dealed in raw silk, were established in Tokyo and Yokohama and then developed their branches in the central cities of higher order such as prefectural seats and the textile districts.3) Those three groups of banks mentioned above represented various locations under varied regional structures of industries. In the regions with less developed industries such as Ibaragi and Chiba prefectures, very large banks whose main offices were located in Tokyo and Yokohama established early their branches in the places of higher order and of intermediate order. As these very large banks exerted their dominant influences upon large local banks, the network of branches of the latter banks were hard to be developed. However, the branches of very large banks, which had their head offices in Tokyo and Yokohama, were established only in the central places of higher order or of intermediate order. Consequently, in the places of lower order and the lowest order, small local banks could establish their branches in their neighboring areas.