The Japanese main bank system: A transaction cost approach

Contrary to their high performance in the past, Japanese banks suffered from bad loans and were deeply concerned with the prolonged depression of the Japanese economy during the 1990s. This raised questions of what changes occurred in the Japanese banking sector and what policies should be addressed to restore the sector. This dissertation gave answers to those questions from the standpoint of transaction cost economics, which was applied to the post-war major enterprise groups and their banks in Japan. The approach analyzed how the inter-firm transactions were molded in the groups and compared the groups qualitatively and quantitatively in light of transaction costs.; The major findings were the following: (1) 1945 to the early 1970s---while the intra-group transaction supported by the group bank was common across the groups, there was divergence in how often such a transaction occurred. Typically, the former zaibatsu groups, especially the Mitsubishi group, outdid others in frequency. This was because their firms were mostly spin-offs in the heavy and chemical sectors during the zaibatsu era. (2) Early 1970s to the mid 1980s---all groups suffered from the two oil crises that damaged their intra-group transactions. Many group firms established their subsidiaries to explore new transaction networks. This tendency was less likely in the former zaibatsu groups, especially Mitsubishi. (3) Mid 1980s to the early 2000s---the group firms tapped into capital markets as financial deregulation progressed. The group banks then began speculative lending. This tendency occurred infrequently in Mitsubishi, where the group firms kept higher levels of transactions and, thus, were bound by higher levels of cross-shareholdings. Consequently, Mitsubishi Bank fared well in the 1990s.; The following recommendations were made so that financing can accommodate the new inter-firm transactions emerging after the oil crises: (1) introducing the holding company system, (2) initiating the share buyback system to reduce cross-shareholdings, (3) equipping firms with a banking function, and (4) allowing banks to invest in small and medium-sized firms. The laws concerning these policies accordingly need revision.