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

Published online by Cambridge University Press:  22 November 2005

TETSUJI OKAZAKI ,
MICHIRU SAWADA  and
KAZUKI YOKOYAMA
TETSUJI OKAZAKI
Affiliation:
Professor, Faculty of Economics, The University of Tokyo, 7-3-1, Hongo, Bukyo-ku, Tokyo, 113-0033, Japan. E-mail: okazaki@e.u-tokyo.ac.jp.
MICHIRU SAWADA
Affiliation:
Assistant Professor, Department of Economics, Nagoya Gakuin University, 1350, Kamishinano-cho, Seto, 480-1298, Japan. E-mail: sawada@ngu.ac.jp.
KAZUKI YOKOYAMA
Affiliation:
Associate Professor, Department of Economics, Nagoya City University, Yamanohatake-1, Mizuho-ku, Nagoya, 467-8501, Japan. E-mail: kazky@econ.nagoya-cu.ac.jp.
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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.

Type
ARTICLES
Information
The Journal of Economic History , Volume 65 , Issue 4 , December 2005 , pp. 1082 - 1115
Copyright
© 2005 The Economic History Association

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