Bond underwriting by banks and conflicts of interest: Evidence from Japan during the pre-war period |
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| Institution: | 1. Mendoza College of Business, University of Notre Dame, Notre Dame, IN, 46556, United States;2. Hankamer School of Business, Baylor University, Waco, TX 76798-8004, United States;1. Robert H. Smith College of Business, University of Maryland, College Park, MD 20742, USA;2. Rutgers School of Business, Camden, NJ 08102, USA;3. A.B. Freeman School of Business, Tulane University, New Orleans, LA 70118, USA;1. Rawls College of Business Administration, Texas Tech University, Lubbock, TX 79409, USA;2. Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106, USA;3. College of Business Administration, University of Central Florida, Orlando, FL 32816, USA;4. College of Business and Economics, Lehigh University, Bethlehem, PA 18015, USA;1. School of Accounting, Anhui University of Finance and Economics, Bengbu, China;2. School of Accounting, Yunnan University of Finance and Economics, Kunming, China;3. Research Center of Finance, Shanghai Business School, Shanghai, China |
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| Abstract: | Article 65 of the Securities and Exchange Law of Japan, which was carried into effect in 1948, prohibited banks from underwriting corporate securities partially because of the concern that combining the banking and securities businesses might result in a potential conflict of interest. This paper studies the pricing and long-term default performance of industrial bonds underwritten by commercial banks, the Industrial Bank of Japan (IBJ), and trust firms as compared to those underwritten by investment houses during the pre-war period in Japan when banks were allowed to underwrite industrial bonds. The evidence rejects the concern about the conflicts of interest. |
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