An Explanation Of Main Bank Relationship In Japan

The Free essays given on our site were donated by anonymous users and should not be viewed as samples of our custom writing service. You are welcome to use them to inspire yourself for writing your own term paper. If you need a custom term paper related to the subject of Accounting or An Explanation Of Main Bank Relationship In Japan , you can hire a professional writer here in just a few clicks.
First, it is necessary to define what a Japanese “main bank” is. The “main bank” is defined as the “financial group” (“kinyu keiretsu” in japanese) in the paper. “Financial group” is defined in principle by the amount of financing that a bank supplies to a particular borrowing company. When a given company has taken out the largest amount of loans from a particular bank for the past three or more years consecutively, the company is viewed as belonging to that bank’s “financial group.” Nearly all the companies listed in the first section of Tokyo Stock Exchange have a main bank. However, these companies borrow not just from their main bank, but from a large number of other banks and financial institution as well. While the main bank is an important lender, the company must also rely on loans from the main bank’s competitors which in sum far exceed those from the main bank itself. Although the generally accepted notion among researchers in that the main bank relationship in Japan is extremely stable, this evidence suggests that the Japanese main bank is one of much more fluidity than has been generally believed. Now, the paper presents some factors that might account for the actual changing patterns of main bank affiliations. These factors are (a) the uncertainty of companies’ operating performance, assuming the main bank relationship serves an important function of risk-sharing between companies and banks, it can be derived that an increase in the uncertainty of the business environment for a specific industry should decrease the proportion of companies that change their main bank, thus, changes in main bank affiliation will be systematically related to changes in the uncertainty of the performance of corporate borrowers; (b) the history of the main bank relationship, as the accumulated value of the main bank relationship is assumed to be positively correlated with the duration of the relationship, the longer a company has continued to maintain a main bank relationship with a specific bank, ceteris paribus, the less likely the company is to break that relationship off; this proposition concerning the changeableness of the main bank relationship is also a testable one; (c) the growth of the borrowing companies, it can be regarded as related to main bank changes in 2 ways: first, the growth of a company raise its reputation and credibility in financial market so that the lenders don’t need to spend much information cost to confirm its credit, if the main bank relationship means economizing on information costs, we can expect those companies have achieved relatively rapid growth to show more tendencies to leave main bank relationships that those that have been stagnant; second, rapidly growing companies will tend to switch their main bank relationships to large banks as it’s easy to accommodate their customer’s expanding demands for diversified financial services.and (d) the “leading bank” factor, since the leading banks have capability of supplying a larger variety of services, including financial services overseas, they tend to increase their shares in main bank relationships. There is a type of contingency claim between banks and the borrowing companies which are in their financial groups. Namely, the lending rate remains relatively low when the market rate rises, and the rate stays relatively high when the market rate fails. Through this sort of contract, the borrowers are able to some extent to avoid the risk of movements in the market interest rate. There is another study supports the hypothesis that in the Japanese bank loan market, banks and firms share risks through loan contract arrangement. They even say that some part of the loan interest rate rigidity in Japan can be explained by the implicit contracts between banks and borrowing companies. However, the stabilization of interest expenses does not necessarily imply the stabilization of the borrowing companies’ operating performance. This becomes clearer if we consider the next set of accounting equations for the Japanese company: (operating profits)+(non-operating revenues)-(non-operating expenses)=(ordinary profits); (ordinary profits)+(extraordinary profit and loss + special retained funds)-(corporation taxes)= profits for the period. In Japan, more than 80%of non-operating expenses is occupied by financial expenses, and almost all of these financial expenses are composed of interest payments and discounting fees. And so, if the corporate objective were really to maintain the stability of ordinary or net profits, then financial expenses such as interest payments should move in a manner which to some extent offsets movements in operating profits. Only in this manner, rather than through the stabilization of interest payments, would changes in operating profits be less likely to destabilize net profits. In fact, it is possible to imagine cases in which the stabilization of interest expenses, far from stabilizing net profits, actually increase their volatility. In this sense, if the main bank relationship actually serves to diversify risk, we should observe financial expenses of client companies being adjusted to offet shifts in their operating profits. In the periods when the operating profits of companies are relatively low, we should observe manifestation of an implicit contract that lowers their financial expenses, so that a large-scale drop in the net profits that the company can claim is averted. The effective borrowing rate of interest for the company is not the contracted face value rate of interest, but the “effective” rate of interest that takes into account the interest rate of the compensatory balances. If financia

Our inspirational collection of essays and research papers is available for free to our registered users

Related Essays on Accounting

Accounting

Tutorial Task 1 Examine the sample purchase order database for this session and be sure you understand each of the queried that have been developed and what they do. Task 2 Add the foll...

Exchange Rates And Their Effect On Trade

Exchange Rates and Their Affect on Trade I. INTRODUCTION Objective The general objectives of this study are to describe recent trade problems and examine why these problems are related ...

Supply Chain Management

To balance the customers' demands with the need for profitable growth, many companies have moved aggressively to improve supply chain management. Their efforts reflect what I feel are the seven mos...

Franchising

A franchise, by definition is a legal agreement that allows one organization with a product, idea, name or trademark to grant certain rights and information about operating a business to an i...

Latin American Hydroelectricity Research

Financial Analysis of Latin America Opportunity The following is an illustration of the financial feasibility of a joint venture hydro electricity power plant project in Central America. Est...

Mckinsey

Over the decades, McKinsey's success and its reputation have been determined by the quality of its clients — not just the institutions, but the individuals. The firm was founded in 19...

詳細はこちら adulttorrent.org