TITLE:
Market Discipline of Subordinated Debt: Empirical Evidence from Japanese Commercial Banks
AUTHORS:
Young-Soon Hwang, Hong-Ghi Min
KEYWORDS:
Market Discipline; Subordinated Debt; Japanese Commercial Banks; Loan Risk; Stock Investment Risk
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.2 No.2,
June
10,
2013
ABSTRACT: We investigate if Subordinated Note and Debenture
(SND) holders make banks to take less risk by analyzing balance sheet data of
Japanese commercial banks. The cross-section regression shows that banks take
less risk as the amount of SNDs increase. Specifically, it is shown that the
loan risk measure (the ratio of impaired loans to the total loans) and the
stock investment risk measure (the invested stocks over bank capital) have
decreased with the increase of SND amounts. These results provide evidence that
SNDs are effective instrument for the market discipline.