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Measuring the Extent and Implications of Director Interlocking in the Prewar Japanese Banking Industry

Year: 2005

Type: article

Abstract: In prewar Japan, many banks were controlled by industrial companies through capital and personal relationships. The literature has pointed out that those banks engaged in unsound lending to their related companies, which resulted in damage to the financial system (organ bank hypothesis). In this article we examine this hypothesis by measuring director interlocking between banks and nonbanking companies. It was found that more than 80 percent of ordinary banks had director interlocking with at least one nonbanking company. Also, regression analyses confirmed that director interlocking had a negative effect on bank performance, especially for smaller banks.

Source: The Journal of Economic History

DOI: 10.1017/s0022050705000410

Authors: TETSUJI OKAZAKI, MICHIRU SAWADA, KAZUKI YOKOYAMA

Institutions: The University of Tokyo, Nagoya Gakuin University, Nagoya City University

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1504437360

FWCI: 8.539

Cites: 20

Cited by: 49

Related to: 10