Monitoring the Monitors: Are Old Boys Networks Being Used to Monitor Japanese Private Banks?

Political Intervention, Corporate Governance and Firm Performance: An Empirical Investigation in Japan and Taiwan

“…This is confirmed in the tests of Hypotheses 1 and 2 above. These results are consistent with those of Van Rixtel and Hassink (2002) and confirm the predictions that arise from the perspective of resource dependence theory (Pfeffer and Salancik, 1978;Hillman et al, 2000;Hillman, 2005), or a combination of institutional and resource-based views (Oliver, 1997).…”

“…As a first step in this direction, the issue of why the government and other financial institutions intervene in the operation of a company is examined. Previous literature indicates that the system of amakudari is not solely used as a reward system but is also used for trouble shooting (Van Rixtel and Hassink, 2002). That is, retired bureaucrats from government institutions are sent into troubled companies experiencing a financial crisis or under a threat of insolvency, and use their political networks to help such companies, for example by petitioning for a loan deadline to be extended or by asking for additional funding from the government.…”

“…On the other hand, while troubled companies may seek or accept the boardroom appointment of retired bureaucrats because they see the advantage that the help and contacts of these former bureaucrats can bring, the resulting outcome may be less than efficient. For example, troubled companies may be tempted to invest in risky projects but find themselves constrained by a regulatory environment which is monitored by the government (Van Rixtel and Hassink, 2002). In this situation, such companies may utilize retired bureaucrats to persuade the government to extend their loans and to allow them to take up high-risk investment projects.…”

“…There is an additional phenomenon which commonly occurs in Japan, namely, the significance of university cliques, or so-called 'gakubatsu', which establish strong support and group consciousness within and between large Japanese companies (Colignon and Usui, 2003;Van Rixtel, 2002). In Japan, top-level bureaucrats have a similarity of education that produces a very exclusive environment and a special elite culture, which is very hard for other people who do not have the same background to enter (Van Rixtel and Hassink, 2002), but may be shared across senior company executives and high ranking government officials, thus enhancing the likelihood and effectiveness of company-government linkages. To measure the importance of academic background, the variable GAKUBATSU is constructed as the ratio of the number of graduates from the five most prestigious universities in Japan (so-called the 'Big five' (Note 6)) to the total number of directors on a board.…”

“…There are also a number of studies regarding the relationship between Japanese bank performance and the system of amakudari. Van Rixtel and Hassink (2002) claim that troubled banks may attempt to employ more retired officials from the Ministry of Finance (MoF) and the Bank of Japan (BoJ), because these retired officials can persuade the relevant regulators to allow the banks to take on more loans, as they attempt to improve performance in this way. In addition, risky loans increase after these ex-officials are recruited, which is taken to suggest that the purpose of amakudari is to gain influence on the government.…”