ce of Japanese banks must be accomplishedby internalmechanisms. We presume that bank performance is a reliable proxy for executiveeffectiveness and interpret executive turnover following poor stock returns or profitabilityand as evidence of active internal governance.We do not detect a relation between turnoverand stock returns, profitability, or asset growth in the pre-crisis years of 1985–1990,however. This finding could reflect that absolute bank performance, especially when
measured by stock prices, was high during the pre-crisis period, and that relative performancedid not factor into evaluations of top executives. Perhaps bank managers wereevaluated on other criteria during this period, such as non-public performance measures or
the collective performance of firms in the banks’ client networks. Aless benign interpretationis that Japanese bank managers did not face performance incentives in the late1980s when lending decisions exposed banks to risks that subsequently became manifest in
the collapse of asset prices, the recessions, and the bad loan problems of the 1990s.Incentives for Japanese bank executives appear to sharpen during the crisis period of1991–1996. Specifically, we find an inverse relation between bank performance and nonroutine
presidential turnover, i.e., when a president is replaced yet does not succeed to thechairmanship. For instance, the observed frequency of non-routine presidential turnoverfor a bank in the worst quintile of market-adjusted stock return is 7.0%, versus 1.6% for a
bank in the best performance quintile. Similarly, the frequency of non-routine turnover fora bank in the worst quintile of industry-benchmarked profitability is 15.1% versus about
2.5% for other banks. Performance–turnover relations of this magnitude are commonlyinterpreted as economically significant and are comparable to those observed at U.S. banks
and Japanese industrial firms (Barro and Barro, 1990; Kaplan, 1994; Kang and Shivdasani,1995). In short, our results suggests that Japanese bank executives faced consequences forpoor performance in the 1990s, a period otherwise characterized by inactive external
governance and regulatory forbearance.Our investigation contributes to our knowledge of corporate governance in severalways. First, relative to our understanding of corporate governance of Japanese industrial
328 C.W. Anderson, T.L. Campbell II / Journal of Corporate
Finance 10 (2004) 327–354firms we know very little about the governance of Japanese financial institutions,particularly with respect to the banking crisis of the 1990s. Forexample, several studiesaddress whether Japanese banks face so-called ‘‘market discipline’’ and establish thatbank performance and risk are reflected in stock prices even when financial statementsare opaque and regulators follow policies that prop up poorly performing banks (Genay,1998; Brewer et al., 1999; Yamori, 1999; Bremer and Pettway, 2002). Our study isimportant because it suggests that internal mechanisms at Japanese banks provideperformance incentives to executives in the 1990s, a period otherwise characterized byregulatory forbearance and inactive external governance. On the other hand, Hoshi andKashyap (1999) indicate that deregulation, disintermediation, internationalization, deterioratingbalance sheets, and other characteristics of the Japanese banking sector in the
1990s prompt a dire need for consolidation and restructuring. Jensen (1993) and Kaplan(1997
本论文由英语论文网提供整理,提供论文代写,英语论文代写,代写论文,代写英语论文,代写留学生论文,代写英文论文,留学生论文代写相关核心关键词搜索。