Bank equity ownership and corporate hedging: Evidence from Japan

Piman Limpaphayom, Daniel A. Rogers, Noriyoshi Yanase

Research output: Contribution to journalArticle

Abstract

This study examines the relation between bank equity ownership and corporate hedging in Japan, an economy where banks are allowed, to a certain limit, to hold shares of firms to which they lend funds. The results show that bank equity ownership is positively related to the corporate usage of derivatives. We also find very little evidence that firm-level financial constraints affect derivatives usage. We further analyze the relation between derivatives usage and firm value to assess whether derivatives usage is driven by bank rent-seeking or speculative behavior. We find that derivatives usage is positively related to firm value providing support to the notion that bank equity ownership increases corporate hedging which, in turn, leads to high firm valuation. Robustness tests show that the relation between hedging and main bank equity ownership is not driven by endogeneity. In the end, our findings suggest that corporate hedging is driven by risk-averse incentives resulting from bank monitoring. We conclude that, in addition to relevant economic factors, ownership structure can also affect corporate hedging behavior.

Original languageEnglish
Pages (from-to)765-783
Number of pages19
JournalJournal of Corporate Finance
Volume58
DOIs
Publication statusPublished - 2019 Oct 1

Fingerprint

Japan
Corporate hedging
Derivatives
Equity ownership
Firm value
Risk-averse
Financial constraints
Hedging
Robustness test
Ownership structure
Economic factors
Main bank
Bank monitoring
Incentives
Rent-seeking
Firm valuation
Endogeneity

Keywords

  • Bank equity ownership
  • Derivatives
  • Firm value
  • Hedging
  • Japan

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

Bank equity ownership and corporate hedging : Evidence from Japan. / Limpaphayom, Piman; Rogers, Daniel A.; Yanase, Noriyoshi.

In: Journal of Corporate Finance, Vol. 58, 01.10.2019, p. 765-783.

Research output: Contribution to journalArticle

Limpaphayom, Piman ; Rogers, Daniel A. ; Yanase, Noriyoshi. / Bank equity ownership and corporate hedging : Evidence from Japan. In: Journal of Corporate Finance. 2019 ; Vol. 58. pp. 765-783.
@article{5405d61585ec41729ae54030578c1474,
title = "Bank equity ownership and corporate hedging: Evidence from Japan",
abstract = "This study examines the relation between bank equity ownership and corporate hedging in Japan, an economy where banks are allowed, to a certain limit, to hold shares of firms to which they lend funds. The results show that bank equity ownership is positively related to the corporate usage of derivatives. We also find very little evidence that firm-level financial constraints affect derivatives usage. We further analyze the relation between derivatives usage and firm value to assess whether derivatives usage is driven by bank rent-seeking or speculative behavior. We find that derivatives usage is positively related to firm value providing support to the notion that bank equity ownership increases corporate hedging which, in turn, leads to high firm valuation. Robustness tests show that the relation between hedging and main bank equity ownership is not driven by endogeneity. In the end, our findings suggest that corporate hedging is driven by risk-averse incentives resulting from bank monitoring. We conclude that, in addition to relevant economic factors, ownership structure can also affect corporate hedging behavior.",
keywords = "Bank equity ownership, Derivatives, Firm value, Hedging, Japan",
author = "Piman Limpaphayom and Rogers, {Daniel A.} and Noriyoshi Yanase",
year = "2019",
month = "10",
day = "1",
doi = "10.1016/j.jcorpfin.2019.07.001",
language = "English",
volume = "58",
pages = "765--783",
journal = "Journal of Corporate Finance",
issn = "0929-1199",
publisher = "Elsevier",

}

TY - JOUR

T1 - Bank equity ownership and corporate hedging

T2 - Evidence from Japan

AU - Limpaphayom, Piman

AU - Rogers, Daniel A.

AU - Yanase, Noriyoshi

PY - 2019/10/1

Y1 - 2019/10/1

N2 - This study examines the relation between bank equity ownership and corporate hedging in Japan, an economy where banks are allowed, to a certain limit, to hold shares of firms to which they lend funds. The results show that bank equity ownership is positively related to the corporate usage of derivatives. We also find very little evidence that firm-level financial constraints affect derivatives usage. We further analyze the relation between derivatives usage and firm value to assess whether derivatives usage is driven by bank rent-seeking or speculative behavior. We find that derivatives usage is positively related to firm value providing support to the notion that bank equity ownership increases corporate hedging which, in turn, leads to high firm valuation. Robustness tests show that the relation between hedging and main bank equity ownership is not driven by endogeneity. In the end, our findings suggest that corporate hedging is driven by risk-averse incentives resulting from bank monitoring. We conclude that, in addition to relevant economic factors, ownership structure can also affect corporate hedging behavior.

AB - This study examines the relation between bank equity ownership and corporate hedging in Japan, an economy where banks are allowed, to a certain limit, to hold shares of firms to which they lend funds. The results show that bank equity ownership is positively related to the corporate usage of derivatives. We also find very little evidence that firm-level financial constraints affect derivatives usage. We further analyze the relation between derivatives usage and firm value to assess whether derivatives usage is driven by bank rent-seeking or speculative behavior. We find that derivatives usage is positively related to firm value providing support to the notion that bank equity ownership increases corporate hedging which, in turn, leads to high firm valuation. Robustness tests show that the relation between hedging and main bank equity ownership is not driven by endogeneity. In the end, our findings suggest that corporate hedging is driven by risk-averse incentives resulting from bank monitoring. We conclude that, in addition to relevant economic factors, ownership structure can also affect corporate hedging behavior.

KW - Bank equity ownership

KW - Derivatives

KW - Firm value

KW - Hedging

KW - Japan

UR - http://www.scopus.com/inward/record.url?scp=85070416321&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85070416321&partnerID=8YFLogxK

U2 - 10.1016/j.jcorpfin.2019.07.001

DO - 10.1016/j.jcorpfin.2019.07.001

M3 - Article

AN - SCOPUS:85070416321

VL - 58

SP - 765

EP - 783

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

SN - 0929-1199

ER -