Main bank relationship and accounting conservatism: evidence from Japan

In a market-oriented economy like the USA, the process of monitoring through lending mitigates lenders’ demand for accounting conservatism. Japanese corporate governance is characterized as a bank-dominated or relationship-oriented system. Under bank-dominated systems, main banks are expected to be...

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Bibliographic Details
Published inAsian business & management Vol. 19; no. 1; pp. 62 - 85
Main Authors Sakawa, Hideaki, Watanabel, Naoki
Format Journal Article
LanguageEnglish
Published London Palgrave Macmillan UK 01.02.2020
Palgrave Macmillan
Subjects
Accounting
Asian Culture
Asymmetric information
Banking industry
Banks
Business and Management
Conservatism
Corporate governance
Correlation analysis
International Business
Original Article
Relationship banking
Agency problem
Main bank
Accounting conservatism
Corporate governance
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Summary:In a market-oriented economy like the USA, the process of monitoring through lending mitigates lenders’ demand for accounting conservatism. Japanese corporate governance is characterized as a bank-dominated or relationship-oriented system. Under bank-dominated systems, main banks are expected to be effective monitors. In our model, main banks play the role of reducing the lenders’ demand for accounting conservatism by reducing information asymmetry. We find that main banks can reduce the demand for accounting conservatism. Our findings help understand accounting conservatism vis-à-vis agency problems. We provide empirical evidence to contribute to literature on banking, specifically to fields such as relationship banking.
ISSN:1472-4782
1476-9328
DOI:10.1057/s41291-019-00071-5