Main bank relationship and accounting conservatism: evidence from Japan

Sakawa, Hideaki; Watanabel, Naoki

doi:10.1057/s41291-019-00071-5

Cited by 17 publications

(14 citation statements)

References 55 publications

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“…Our independent variables are as follows: we define the main banks as the largest lenders to their client firms [65]. Therefore, the main bank shareholding represents the shareholdings of the largest lenders divided by total outstanding shares, following Morck et al [72] and Sakawa and Watanabel [67]. Foreign ownership is measured as the shareholdings of foreign shareholders divided by the total outstanding shares [53,64].…”

Section: Methodsmentioning

confidence: 99%

“…They gather information by utilizing bank-appointed monitors and their incentives are provided [66]. These banks are expected to be effective monitors and gather enough information concerning the financial health of client firms [67]. Therefore, the main banks prompt their client firms regarding investment for future growth by the family board members of the firms.…”

Section: Bank Ownership Monitoring and Family Controlmentioning

confidence: 99%

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Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

Sakawa

Watanabel

2021

Sustainability

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This study investigates the effects of family control on corporate innovation activity in publicly traded firms in Japan under stakeholder-oriented corporate governance. In a sample of 14,991 firm-year observations in publicly traded firms in Japan during the period 2007 to 2016, we tested whether family owners or board members are enhancing research and development investments. While theoretical perspectives of principal–principal conflicts generally assume a negative relationship between family control and research and development intensity, we find a positive relationship, which supports the stewardship theory perspective. Additionally, we find that main bank ownership positively moderates the relationship between family control and research and development, suggesting that the main bank could affect the decision-making of family board members in the long-term. This result is supported by the close relationships between the main bank and client firms. Furthermore, our study reveals that the shareholder orientation of foreign shareholders suppresses family board members’ long-term orientation. We conclude that the exploitation presumed by principal–principal conflict perspectives has not been thoroughly investigated in Japan’s stakeholder-oriented corporate governance system.

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Section: Methodsmentioning

confidence: 99%

Section: Bank Ownership Monitoring and Family Controlmentioning

confidence: 99%

Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

Sakawa

Watanabel

2021

Sustainability

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“…This relationship gives main banks access to client financial information that is not made public, and reduces the information asymmetry between the bank and borrowing client. Observing that companies having main bank relationships exhibit less accounting conservatism than those borrowing on the commercial market, Sakawa and Watanabel (2020) conclude that this form of Japanese governance is effective at monitoring firms.…”

Section: Articles In This Special Issuementioning

confidence: 93%

“…Taken together, Kosaka et al (2020) and Sakawa and Watanabel (2020) suggest that Japanese business, although affected by the environment and the practices of foreign competitors, continues to maintain uniquely Japanese practices. Rather than being replaced by foreign practices, it appears that Japanese business practices have evolved over time, sometimes turning into new, hybrid practices incorporating aspects of the traditional Japanese practice and foreign concepts.…”

Section: Articles In This Special Issuementioning

confidence: 98%

“…Kosaka et al (2020) find that while keiretsu relationships have changed to incorporate the market mechanism, these relationships continue to be important. Sakawa and Watanabel (2020) study the Japaense main bank system, a Japanese corporate governance mechanism differing from Western, market-based approaches. Main banks are primary providers of capital to their client firms and hold long-term relationships, including equity participation.…”

Section: Articles In This Special Issuementioning

confidence: 99%

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The past and future contributions of research on Japanese management

Makino

Lehmberg

2019

Asian Bus Manage

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Publications on Japanese business have decreased as Japan continued to experience slow economic growth and fell behind other countries in competitiveness. While implementation of "Abenomics" policies has resulted in some encouraging economic growth, Japan faces additional challenges stemming from demographic change and globalization. These environmental trends along with technological change including digitalization and artificial intelligence appear likely to transform Japanese business and Japanese managerial practice as we know them, presenting new opportunities to learn from Japan. In this special issue, we reflect on the impact of past research on Japanese management, present several studies with implications about how Japanese business is changing, and pose questions for future research.

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Accounting Frauds and Main-Bank Monitoring in Japanese Corporations

Sakawa

Watanabel

2021

J Bus Ethics

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This study examines whether the delegated monitoring of main banks effectively decreases severe agency problems. For example, this includes accounting fraud in bank-dominated corporate governance. In this context, the fraud triangle specifies the three main factors of opportunity, incentive, and rationalization. Main banks may reduce the factor of opportunity through actions such as monitoring, which plays a moderating role by reducing the potential for managerial misconduct, whereas, the incentive factor may be enhanced through the subsequent pressure that influences managers to force turnover when they do not repay debts. The potential influence that the main banks have on the fraud rationalization factor may be stronger in firms that are more dependent on main-bank borrowing. This study analyzed data from publicly listed firms in Japan for the period between 2008 and 2016 to determine how main-bank relationships affected accounting fraud, thus allowing an assessment of delegated monitoring practices. Findings showed that main-bank relationships were helpful for reducing accounting fraud, suggesting its overall effectiveness in delegated monitoring. Results also showed that large audit firms did not necessarily prevent accounting fraud, which implies that main banks can employ their own monitoring as a substitute for the roles typically played by these firms. Here, the main policy implication is that main-bank relationships may strengthen business ethics in the context of bank-dominated corporate governance. In conclusion, the continued analysis of bank monitoring may benefit stakeholders while strengthening business ethics in bank-centered economies.

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Main bank relationship and accounting conservatism: evidence from Japan

Cited by 17 publications

References 55 publications

Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

Family Control and Corporate Innovation in Stakeholder-Oriented Corporate Governance

The past and future contributions of research on Japanese management

Accounting Frauds and Main-Bank Monitoring in Japanese Corporations

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