Masaru Konishi

Factors affecting bank risk taking: Evidence from Japan

Abstract Using recent data from Japan, this paper examines empirically the determinants of risk taking at commercial banks. We find that the implementation of the capital adequacy requirement reduced risk taking at commercial banks. The acceptance of retired government officials on banks’ boards has an insignificant effect on bank risk. The relationship between the stable shareholders’ ownership and bank risk is nonlinear; the risk decreases initially with the ownership by stable shareholders, and then increases as the asset substitution effect dominates the effect of managerial entrenchment on bank risk. The decline of franchise value increases bank risk.

Bond underwriting by banks and conflicts of interest: Evidence from Japan during the pre-war period

Abstract Article 65 of the Securities and Exchange Law of Japan, which was carried into effect in 1948, prohibited banks from underwriting corporate securities partially because of the concern that combining the banking and securities businesses might result in a potential conflict of interest. This paper studies the pricing and long-term default performance of industrial bonds underwritten by commercial banks, the Industrial Bank of Japan (IBJ), and trust firms as compared to those underwritten by investment houses during the pre-war period in Japan when banks were allowed to underwrite industrial bonds. The evidence rejects the concern about the conflicts of interest.

The Relationship Between Bank Risk and Earnings Management: Evidence from Japan

Using stock price data drawn from the 1990s in Japan, this paper empirically shows that bank risk is negatively associated with discretionary accruals, indicating that investors misinterpreted high reported earnings as favorable information about bank financial health. We also show that the negative relationship was very powerful prior to the major bank failures in late 1997 and 1998, but it diminished subsequent to the failures. We conclude that investors started to anticipate potential manipulation of financial reports by bank managers more rationally after the major bank failures.

A global network of stock markets and home bias puzzle

This article shows empirically that Nasdaqs termination of Japanese operation adversely affected the shareholder wealth of companies listed on the Nasdaq Japan stock market. The evidence suggests that integration of world stock markets as envisioned by Nasdaq could have facilitated foreigners’ investment in domestic stocks, thereby reducing the home bias.

Bank Governance and Bank Capital

This study examines the impact of bank ownership and bank governance on capital. Using Japanese commercial banks as a sample over a Basel II period (2007-2012), we investigate the impact of bank ownership and management structure on the level of bank capital. Our results suggest that institutional and foreign ownership tends toward a higher level of capital for the sake of risk-taking. In contrast though, inside directors are more concerned with their undiversified human capital risk, thus reluctant to increase capital for a higher level of risk-taking. Additionally, board size, independent directors, and outside directors positively affect the level of capital, revealing the conservatism of these directors in maintaining higher capital levels to prepare for unexpected losses.

Capital requirements, bank behavior and fair value accounting: Evidence from Japanese commercial banks

Using data from Japanese commercial banks during 2002-2012, we explore the relationship between banks’ choice of capital buffers and prevailing macroeconomic conditions. We find a positive relationship between capital buffers and the phase of the business cycle, and further find that this positive relationship was weakened after the implementation of Basel II. We also examine whether the gap between desired and actual capital buffers, as well as the phase within the business cycle, affected banks’ balance sheet management behavior and lending activities. We find that during periods of economic upturn, banks increased capital more than they increased lending. These results are consistent with the countercyclical capital management behavior exhibited by commercial banks. Moreover, we find that banks which adopting fair value accounting (FVA) intend to behave more counter cyclically in their capital management practice as compared to domestic banks.