The Determination of Cross-shareholdings and the effect of Its Dissolution

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Our principal empirical results are summarized as follows :Our principal empirical results are summarized as follows :(i)In relation to bank versus bond financing, Japanese firms with a smaller Tobin's q and lower interest coverage ratios depend significantly more on bank loans.(ii)In relation to the role of main banks in bank loans, Japanese firms with a smaller Tobin's q and lower interest coverage ratios depend significantly more on short-term bank loans provided by main banks.(iii)In relation to the firm's choice of underwriters, Japanese firms with higher interest coverage and higher debt-asset ratios are more likely to use their main bank-owned securities subsidiaries than other bank-owned securities subsidiaries as a lead underwriter for bond underwriting.(iv)In relation to cross-shareholdings, a smaller Tobin's q indicates that Japanese firms have significantly more shareholdings by main banks than by the other financial intermediaries.In particular, results (ii) and (iii) indicate strongly that the lending behavior of the main bank system is constrained because main banks are forced to make additional loans to firms that have a smaller prospect of growth and a greater likelihood of financial distress, whereas main banks misuse their private information for their self-interest at the expense of the other banks in bond underwriting. Furthermore, result (iv) may imply a negative view of the main bank system with respect to shareholdings. These findings suggest that most of the major Japanese banks cannot decrease their bad loans by themselves. To overcome this problem. the authorities may need to nationalize most of the major Japanese banks and attempt to organize a new banking system that promotes bank lending to firms with greater prospects for growth but a greater likelihood of financial distress.