Is Bank-Centered Corporate Governance Worth it? A Cross-Sectional Analysis of the Performance of Japanese Firms During the Asset Price Deflation

This paper examines the determinants of firm stock-price performance from 1990 to 1993quot; in Japan. During that period of time, the typical firm on the Tokyo Stock Exchange lost morequot; than half its value and banks experienced severe adverse shocks. We show that firms whose debtquot; had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993. This effect isquot; statistically as well as economically significant and holds when we control for a variety ofquot; variables that affect performance during this period of time. We find that firms that were morequot; bank-dependent also invested less during this period than other firms. This evidence points to anquot; adverse effect of bank-centered corporate governance, namely that firms suffer when their banksquot; are experiencing difficulties