Banking, Capital Markets and Corporate Governance by H. Osano, T. Tachibanaki

By H. Osano, T. Tachibanaki

Banking, Capital Markets and company Governance explores the fragility of the banking approach, company governance, and the expanding securitization of company finance. The participants tackle the subsequent matters. The influence of banking in the course of a trouble in offering an incentive for the managers of failing banks to restructure their resources; the way monetary and felony associations can keep watch over the administration of banks and companies; and the results of raises within the securitization of company finance and the quantity of monetary innovation.

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It is in large part the failure promptly to resolve this banking crisis that has led to a prolonged and massive recession. With a large fraction of non-performing loans, a reduced capital base and substantially lower liquidity the banking sector has dramatically reduced new lending activity and provoked a huge credit crunch. Other countries have witnessed large scale banking crises in recent years, but what sets the Japanese experience apart is the problem of hidden loan losses and opaque accounting practices as well as the stunning complacency of regulatory authorities.

This means that the maximum possible payment increases by terminating the project under the ex post liquidity shock. In other words, an entrepreneur can promise to pay more if he/she can commit by himself/herself to terminate the project when the ex post liquidity shock occurs. In this model, the continuation decision is endogenous. If the entrepreneur has suf®cient liquidity asset, he/she can continue the project even under the ex post shock. Furthermore he/she has an incentive to continue the project because of the private gain B.

Thus holding too much liquidity holding tends to continue the project even under the ex post shock and has a negative impact on the maximum possible payment. In the next sub-section, we will make clear this point. 3 Liquidity asset holding and optimal investment level In this sub-section, we examine whether the project is terminated or not under the ex post liquidity shock. Since an entrepreneur can get the private gain B by continuing the project, he/she will choose the continuation as long as he/she can implement the additional investment.

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