Main Bank Relationship and Accounting Conservatism: Evidence from Japan

Sakawa, Hideaki; Watanabel, Naoki

In a market-oriented economy like the U.S., 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.

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More About This Work

Academic Units
Center on Japanese Economy and Business
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Center on Japanese Economy and Business Working Papers, 365
Published Here
September 19, 2018


Keywords: Accounting conservatism; Agency Problem; Corporate Governance; Main Bank