Is universal banking justified? Evidence from bank underwriting of corporate bonds in Japan |
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Authors: | Jun-Koo Kang Wei-Lin Liu |
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Affiliation: | Department of Finance, The Eli Broad College of Business, Michigan State University, East Lansing, MI 48824, USA |
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Abstract: | We examine the extent to which universal banking in Japan creates conflicts of interest. We find that as banks enter the securities business, they discount the price of the corporate bonds they underwrite significantly in an effort to attract investors, thereby generating conflicts of interest that are harmful to issuers. Further, we find that close prior lending relationships between banks and their client issuers is the driving force behind such conflicts and that competition from investment houses limits but does not eliminate these conflicts. Our results contrast sharply with the evidence for the US, which largely shows a certification role for banks. |
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Keywords: | G21 G24 G28 G32 N25 N45 |
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