2003. 28

Debt Forgiveness and Stock Price Reaction ofLending Bank: Theory and Evidence from Japan

Nobuyuki Isagawa, Tadayasu Yamashita

Debt Forgiveness and Stock Price Reaction of Lending Bank:
Theory and Evidence from Japan

Nobuyuki Isagawa* (Kobe University)
Tadayasu Yamashita (Kobe University)

We would like to thank Yoshitaka Kai, Shigeki Sakakibara, Kenya Fujiwara, andseminar participants at Kobe University and the 2003 Japan Finance Association
Annual Conference for their helpful comments.

*

Correspondence Author: Associate Professor of Finance, Graduate School of Business
Administration, Kobe University, 2-1, Rokkodai, Nada, Kobe, Hyogo, 657-8501,
Japan. Phone & Fax: +81-78-803-6907, e-mail: isagawa@kobe-u.ac.jp
1

Debt Forgiveness and Stock Price Reaction of Lending Bank:
Theory and Evidence from Japan

Abstract
We provide a simple model for analyzing how debt forgiveness affects the stock price ofa lending bank. Our model shows that while debt forgiveness increases theshareholders’ wealth of the bank in healthy financial conditions, it decreases theshareholders’ wealth of the bank in unhealthy financial conditions. We empiricallyinvestigate the announcement effect of debt forgiveness on bank stock prices inJapanese markets. On average, lending banks experience a significant negative
announcement effect with respect to debt forgiveness. Consistent with the prediction of
the model, we find a negative relationship between the announcement effect and the badloan ratio as a proxy of the unhealthiness of bank financial conditions.

JEL classification: G21, G31
Keywords: Debt Forgiveness, Bank Stock Price Reaction,
Bad Loan, Japanese Markets2

1. Introduction

It has been pointed out that debt renegotiation is often desirable for a firm infinancial difficulty, because it resolves the inefficiency caused by suboptimal decisions
made by the management of the firm. Since Jensen and Meckling (1976), the risk-taking
incentive problem of a firm with a high-level risky loan is one of the best-known
examples of this issue.1 Shareholders of such a highly leveraged firm are likely toprefer a risky project to a safe project, even though a risky project is less valuable than asafe one. The risk-taking incentive of the borrowing firm decreases the value of thebank loan as well. The borrowing firm and the lending bank can avoid this inefficiency
by reducing the face value of the loan (debt forgiveness). With this reduced loan,
shareholders of the borrowing firm undertake a safe project. Theoretically, such debt
forgiveness decreases neither the shareholders’ wealth of the borrowing firm nor theloan value of the bank. However, little attention has been paid to the effect of debt
forgiveness on the shareholders’ wealth of the lending bank.2
This paper examines both theoretically and empirically how debt forgiveness affects
the shareholders’ wealth of the lending banks. We provide a simple model regarding atypical risk-taking incentive problem of a highly leveraged firm in financial difficulty.
The model illustrates that debt forgiveness can be agreed upon on the condition thatneither the stock price of the firm nor the loan value of the bank decreases. Then, we

1

For a discussion of a risk-taking incentive problem, see also Gavish and Kalay (1983),

Green (1984), and Green and Talmor (1986).
2

Several studies, such as those of Smirlock and Kraufold (1987), Grammatikos andSaunders (1990), and Musumeci and Sinkey (1990), examine the impact of debt
moratoriums by sovereign borrowers on the equity value of lending banks. The subjectof this paper is debt forgiveness between private companies and their lending banks.
3

explicitly analyze the effect of debt forgiveness on the shareholders’ wealth of thelending bank. The model shows that the effect of debt forgiveness on the shareholders’wealth of the bank is dependent upon the financial condition of the bank. When thebank is in an unhealthy financial condition, that is, when the bank itself has relatively
large risky debt (deposit), debt forgiveness decreases the shareholders’ wealth of thelending bank. On the other hand, when the bank is in a healthy financial condition, thatis, when the bank has relatively small risky debt, debt forgiveness has a positive impact
on the shareholders’ wealth of the bank.
This argument proposes that, as in the case of the borrowing firm, the shareholdersof an unhealthy bank with high-level risky debt prefer a risky collection of the loan to astable collection, because of the limited liability effect. If such an unhealthy bank agrees
upon debt forgiveness with the borrowing firm, then the firm undertakes a safe projectso that the collection of the loan becomes stable. While a stable collection of the loan
increases the value of the bank loan, it decreases the equity value of the bank. That is,
debt forgiveness is not desirable from the perspective of the shareholders’ wealth of abank in an unhealthy financial condition. In contrast, for a healthy bank with low-levelrisky debt, debt forgiveness increases the shareholders’ wealth. Shareholders of such ahealthy bank can obtain almost all of the increase in the value of the bank loan
associated with debt forgiveness.
A major implication of the model is that the stock price reaction of the lending bankin response to debt forgiveness is dependent upon the financial condition of the bank.
For a financially unhealthy bank, the stock price goes down in response to debt
forgiveness. On the other hand, for a financially healthy bank, debt forgiveness has a
non-negative impact on the stock price.
Given this hypothesis, we empirically examine the announcement effect of debt
forgiveness on the lending banks. Our sample consists of 16 cases of out-of-court debt
forgiveness agreed upon between Japanese firms and their lending banks in the period

4

from April 1995 to March 2003. We find that, on average, the stock price of the lendingbank decreases in response to the announcement. The lending banks experience anaverage stock price decline of 1.67% in a two-day period just after the announcement.
Several studies, such as those of Cargill (2000), Ueda (2000), and Hoshi and Kashyap(2001, Chapter 8) point out that the financial conditions of Japanese banks haveworsened during the 1990s. It seems reasonable to suppose that, in our sample period,
Japanese banks were in an unhealthy financial condition. Thus, a negative
announcement effect of debt forgiveness on the lending banks agrees with our
prediction.
The relationship between the announcement effect and the financial condition of thelending bank is examined in detail. We employ two measures of the unhealthiness of abank’s financial condition. One is the bad loan ratio of a bank, which is the ratio of theamount of the bank’s bad loans to the total amount of the bank’s loans. The other is thenet bad loan ratio of a bank, which is the ratio of the amount of the bank’s net bad loans(bad loans minus reserves for loans) to the total amount of the bank’s loans. Regression
analyses show that the announcement effect of debt forgiveness on a lending bank has asignificant negative relationship with both the bank’s bad loan ratio and net bad loan
ratio. The unhealthier the bank’s financial condition is, the smaller the stock priceincrease the bank experiences in response to debt forgiveness.
We then divide the sample of lending banks into two groups according to the sign of
the announcement effect, and examine the differences in the bad loan ratios and net badloan ratios between the two groups. We find that, on average, lending banks
experiencing negative announcement effects have higher bad loan ratios and net badloan ratios than do banks experiencing negative announcement effects. We also find thatbanks experiencing relatively small announcement effects are unhealthier than banks
experiencing relatively large announcement effects. These empirical results support the
hypothesis that there is a negative relationship between the announcement effect of debt

5

forgiveness and the unhealthiness of the bank’s financial condition.
Since a bank diversifies its loans to a great many firms, it is plausible that
forgiveness of the debt of any single borrowing firm, or at most a few borrowing firms,
has a negligible impact on the lending bank. Several empirical studies, however, havefound that an event associated with a single borrowing firm has a significant impact on
the lending bank’s stock price. Kracaw and Zenner (1996) report that a bankexperiences a stock price increase when it plays a major role in a highly leveragedtransaction (LBO and leveraged recapitalization) of a single borrower. Dahiya, Saunders,and Srinivasan (2003) have found that the stock price of a lead lending bank drops
significantly after the announcement of a major borrower’s default.
Our findings support the argument that even a single borrower’s financial event hasa significant effect on the shareholders’ wealth of the lending bank. In the sense that weare studying cases in which the borrowing firm has financial trouble, our subject issimilar to that of Dahiya, Saunders, and Srinivasan (2003). However, there is an explicit
difference between out-of-court agreements of debt forgiveness and borrower’s default.
While in the case of borrower’s default the lending does not support the firm’s
out-of-court restructuring, the bank decides to support the firm’s restructuring in thecase of debt forgiveness. One of the most plausible reasons for a bank to support aborrowing firm in financial difficulty is that the bank believes that the firm will be in abetter condition in the future. Nevertheless, as shown theoretically and empirically inthis paper, it is possible that such decision-making decreases the shareholders’ wealth of
the bank.
The remainder of the paper is organized as follows. In Section 2, we provide a
simple model to analyze the effect of debt forgiveness on the lending bank. In Section 3,
we describe our sample associated with debt forgiveness in Japan. In Section 4, we
present empirical results regarding the stock price behavior of the lending bank aroundthe announcement of debt forgiveness. In Section 5, we conclude the paper.

62. A Model of Debt Forgiveness and Stock Price Reaction of a Lending Bank[INSERT FIGURE 1]

We consider a simple situation in which debt forgiveness resolves the inefficiency
caused by the risk-taking incentive of a borrowing firm. There are three dates in themodel. At the initial date, date-0, a firm has bank debt with a face value of D. We
assume that the firm borrows from only one bank.3 At date-1, the firm chooses between
two mutually exclusive strategies: strategy S and strategy R. Strategy S generates acertain cash flow of Y at the terminal date, date-2. Strategy R generates a stochastic cash
flow, i.e., a high cash flow of X with probability p and a low cash flow of zero withprobability 1-p at date-2. All agents are risk-neutral and the risk-free rate is zero.
For the parameters of the borrowing firm, we assume that0 < pX < Y < D < X .

(1)

The condition, pX<Y, means that strategy S is more valuable than strategy R. The
condition, Y<D<X, means that, under the current debt level, shareholders of the firm
obtain nothing from strategy S, but a positive cash flow from strategy R with aprobability p. Throughout the paper, we assume that the borrowing firm acts on behalfof its shareholders’ wealth. Then, under the current setting, the borrowing firm has arisk-taking incentive. Formally, let VF(D, j) denote the value of the equity of the firm,3

We do not consider either the holdout problem, as pointed out by Gertner andScharfstein (1991), James (1995), Detragiache and Garella (1996), or the asymmetric
information problem, as pointed out by Giammarino (1989) and Henikel and Zechner(1993).
7

which is affected by both the debt level of D and the strategy j∈{R, S} chosen at date-1.
Since VF(D, R)=p(X-D)>0 and VF(D, S)=max{Y-D, 0}=0 under (1), the firm chooses aninefficient strategy R in order to maximize the shareholders’ wealth.
The risk-taking incentive of the firm decreases the value of the bank loan as well as
the total value of the firm. The value of the bank loan is pD if strategy R is undertaken,
and Y if strategy S is undertaken. Since pD<pX<Y under (1), the firm’s risk-taking
incentive is not desirable with respect to the value of the bank loan.
It is well-known that debt renegotiation resolves the risk-taking incentive problemof the borrowing firm. We shall concentrate on debt forgiveness in the current setting.
Let D* denote the new face value of the bank loan conditional on debt forgiveness being
agreed upon. It is required that debt forgiveness induces the shareholders of theborrowing firm to undertake strategy S. Let VF(D*, j) denote the equity value of the firm
after debt forgiveness is agreed upon, which is affected by strategy j∈{R, S}. Since
VF(D*, S)=max{Y-D*, 0} and VF(D*, R)=p(X-D*), the firm chooses strategy S if and onlyif
D* ≤ (Y − pX ) /(1 − p ) .

(2)

Since the above condition implicitly requires D*<Y, the value of the loan is given by
D* if debt forgiveness is agreed upon. In the following analysis, we focus our attention
on cases in which debt forgiveness increases the value of the bank loan, that is, pD≤ D*.
Although debt forgiveness increases the value of the bank loan, it is not clear whether
debt forgiveness increases the shareholders’ wealth of the lending bank. We claim thatwhether debt forgiveness increases the shareholders’ wealth of the lending bank or not
is dependent upon the financial condition of the bank.
For the sake of analytical simplicity, we assume that the lending bank has two kindsof assets at date-0: risk-free assets (e.g., Treasury bills or a portfolio of risk-free loans)and the risky loan to the borrowing firm described above. The total value of the risk-free8assets is represented by A. The original face value of the risky loan to the firm isrepresented by D. The bank has debt (deposits) with promised payments of B, whichmatures at date-2. Let C≡B-A, which gives returns from the risky loan that must be
realized at date-2 to meet all deposits with certainty (or to avoid bankruptcy). We
interpret C as a proxy for the unhealthiness of the bank’s financial condition. The
financial condition of the bank becomes unhealthier as the size of C increases.

[INSERT FIGURE 2]

Figure 2 describes the definition of the financial condition of the lending bank as
categorized by the size of C (C* is explained below). We first consider two extreme
situations, C<0 and D<C. In the former case of C<0, which we refer to as a case of ahealthy bank, the bank can meet all debt regardless of the amount of the collection on
the risky loan. In this case, the equity value of the bank increases as the value of theloan increases. Then, debt forgiveness increases the stock price of the lending bank.
In the latter case of D<C, which we refer to as a case of a distressed bank, the bankcannot meet its liability with certainty. The stock price of the distressed bank is always
equal to zero, regardless of whether or not debt forgiveness is agreed upon.
It is interesting to examine situations in which 0<C<D holds. Before moving on to
the analysis, it is useful to describe the equity value of the lending bank. Let VB(D)
denote the equity value of the bank, which is affected by the face value of the risky loan.
When 0<C, the equity value of the bank under the original loan, and that under debt
forgiveness are given by
VB ( D ) = p max{D − C , 0}

(3)

VB ( D* ) = max{D* − C , 0}

(4)

9

We separate the situations of 0<C<D into three cases.
Case 1: An Unhealthy BankFirst consider the case of (Y-pX)/(1-p)<C<D, which we refer to as a case of an
unhealthy bank. It follows from (2) that D*<C holds in this case. Then,
VB(D)=p(D-C)>0 and VB(D*)=0 hold, and the equity value of the bank decreases to zeroif debt forgiveness is agreed upon. For an unhealthy bank, while debt forgivenessincreases both the equity value of the borrowing firm and the loan value of the lendingbank, it decreases the equity value of the lending bank. Note that the unhealthy bankgoes into default with certainty if it provides debt forgiveness. The probability of default
is 1-p if it does not agree upon debt forgiveness.

Case 2: A Moderately Unhealthy Bank
Next, consider the case of C*<C<(Y-pX)/(1-p), which we refer to as a case ofmoderately unhealthy bank. The value of C* is given by
C* =Y − pXpD−
2(1 − p ) 1 − p(5)In contrast to the case of the unhealthy bank (Case 1), the equity value of the bank ispositive if the bank agrees upon debt forgiveness on the condition that the new facevalue of the loan, D*, satisfies C<D*<(Y-pX)/(1-p). For such debt forgiveness, thefollowing relation holds.
VB ( D ) − VB ( D* ) = p ( D − C ) − ( D* − C )> C + p( D − C ) − (Y − pX ) /(1 − p ) = (1 − p )(C − C * )>0(6)

The first inequality follows from D*<(Y-pX)/(1-p), and the second inequality follows
from C*<C. Therefore, as in the case of an unhealthy bank, the equity value of themoderately unhealthy bank decreases in response to debt forgiveness. Note that the10moderately unhealthy bank never goes into bankruptcy if it agrees upon debt
forgiveness satisfying C<D*.

Case 3: A Moderately Healthy Bank
Lastly, consider the case of 0<C<C*, which we refer to as a case of a moderately
healthy bank. In this case, it is possible for the bank to provide debt forgiveness that
increases the bank equity value. In order to demonstrate this claim, we set
D* =Y − pX− ε , 0 < ε < (1 − p)(C * − C )
1− p

(7)

Then, we obtain
VB ( D* ) − VB ( D ) = ( D* − C ) − p ( D − C )Y − pX− ε − C − p ( D − C ) = (1 − p )(C * − C ) − ε
1− p
>0
=

(8)

The second equality follows from (7), the third equality follows from (5), and the lastinequality follows from (7).
In addition, for D* satisfying (7), the loan value under the new face value, D*, islarger than the loan value under the original face value, pD. In fact,
D* − pD =Y − pX− ε − pD
1− p

Y − pX− (1 − p )(C * − C ) − pD
1− p
= (1 − p )C
>0
>

(9)

From (8) and (9), we find that the lending bank and the borrowing firm can agree upondebt forgiveness, which increases both the equity value and the loan of the lending bank,when the bank is in a moderately healthy financial condition. In such a situation, we
predict that the stock price of the bank increases in response to debt forgiveness.
11

The next Proposition and Table 1 summarize the above arguments.

Proposition. When the financial condition of the lending bank is either healthy (C<0) or
moderately healthy (0<C<C*), the stock price of the bank increases in response to debt
forgiveness. When the financial condition of the bank is either moderately unhealthy(C*<C<(Y-pX)/(1-p)) or unhealthy ((Y-pX)/(1-p)<C<D), the stock price of the bankdecreases if the bank agrees to debt forgiveness. For a distressed bank (D<C), debt
forgiveness does not affect the stock price of the bank.

[INSERT TABLE 1]

As the Proposition and Table 1 show that when the lending bank is under either amoderately unhealthy or an unhealthy financial condition, debt forgiveness is notdesirable for the bank shareholders’ wealth. In such situations, shareholders of the bankprefer a risky collection of the original loan to a stable collection of the renewal loan. In
this sense, the lending bank has a risk-taking incentive, too. If the management of thelending bank acts on behalf of its shareholders’ wealth, then the bank does not agree todebt forgiveness. As a result, the borrowing firm will choose the risky strategy R. It isnotable that the lender’s risk-taking incentive cannot resolve the borrower’s risk-taking
incentive.4
However, there exists a possibility that the lending bank agrees upon debt
forgiveness that is not desirable for the shareholders’ wealth. Conceptually, if
managerial shareholding is very small, then the management of the bank would regard

4John, John, and Senbet (1991) and Goldberg and Harikumar (1991) theoreticallyargued with regard to the relationship between bank risk-taking incentive and the designof deposit insurance.
12the value of its firm-specific human capital as more important than the shareholders’wealth. Such management may prefer a stable loan collection to a risky collection inorder to avoid bankruptcy in which the management will lose its position.5 In thecurrent setting, bank management can decrease the probability of default from 1-p tozero by providing debt forgiveness, when the financial condition of the bank is either
moderately healthy or moderately unhealthy. For a moderately unhealthy bank, debt
forgiveness decreases its shareholders’ wealth.
Another possibility is that a bank having close ties to the borrowing firm may makeit a top priority to help the firm in financial difficulty. A good example is main bank inJapan. The main bank of a firm holds considerable shares of the firm, and sometimes
places its employees (often executives) in the board of directors of the firm. If there
exist reasons to prop up a weak borrowing firm, for example to improve the firm’s
productivity or to increase the loan value, then the bank is likely to provide debt
forgiveness with little concern for its own shareholders’ wealth.6
Our model predicts that, in such situations, the effect of debt forgiveness on thebank stock price depends upon the financial condition of the bank. Debt forgivenessdecreases the stock price of the bank if the bank is in a relatively unhealthy financial
condition. On the other hand, the stock price of the bank increases as a result of debt
forgiveness if the bank is in a relatively healthy financial condition.

5

Gilson (1989) and Gilson and Vetsuypens (1993) empirically find that default iscostly for corporate managers. Saunders, Strock, and Travlos (1990)，Demsetz andStrahan (1997), and Anderson and Faster (2000) find empirical evidence that bankmanagers tend to act on behalf of shareholders’ wealth as managerial shareholdings
increase.
6

Hoshi, Kashyap, and Scharfstein (1990) and Morck and Nakamura (1999) empiricallyfind that Japanese main banks prop up their group firms in financial distress.
13

In order to examine the relationship between the bank stock price reaction and thefinancial condition of the bank more formally, we use the rate of return defined as:
RB =VB ( D* )−1
VB ( D)(10)

We consider a lending bank under three non-extreme financial conditions (unhealthy,
moderately unhealthy, and moderately healthy). For an unhealthy bank, the rate of
return is -1 because VB(D)>0 and VB(D*)=0. For a moderately unhealthy bank and amoderately healthy bank, by differentiating RB with respect to C, we obtain∂RB( D* − D )=<0p( D − C )2
∂C

(11)

The magnitude of the bank stock price reaction to debt forgiveness has a negative
relationship with the unhealthiness of the financial condition of the bank.

3. Sample Description

Using Japanese data, we examine the stock price reaction of the lending bank in
response to debt forgiveness. We collected information on out-of-court debt forgivenessthat was agreed upon in the period between April 1995 and March 2003 from the Nihon
Keizai Shimbun, which is the most popular economic press in Japan. Since a small
amount of debt forgiveness is not likely to have an economic impact on the lendingbanks, we restricted our attention to debt forgiveness of more than 100 billion yen(about 9 billion US dollars). During the sample period, we identified 16 events
involving large debt forgiveness. Some of our analysis requires financial information on
both the borrowing firms and lending banks. We collected this kind of information fromthe Toyo Keizai Data Bank and the financial statements of individual firms and banks.
Table 2 presents the sample description. In Panel A, we provide the distribution of14

the sample by year and by the industry to which the borrowing firms belong. Industry
groups are based on the Tokyo Stock Exchange’s industry classifications. It is
well-known that land values have declined during the 1990s in Japan, resulting in a
sharp decline in the performance of the construction and real estate industries in the late
1990s. The sample distribution by industry of the borrowing firm reflects thisphenomenon. More than half of the borrowing firms belong to either the construction orreal estate industry.
Panel B of Table 2 presents statistics on the debt forgiveness transactions. The leadbank is the lead lending bank which has the largest loan to the borrowing firm among all
lending banks. The second bank is the lending bank which has the second largest loan to
the firm. We do not focus on the third lending bank and below because in most cases
they make little contribution to debt forgiveness. On average, 253 billion yen was
forgiven by the group of lending banks. Because of data restrictions, we could not
obtain the complete information on the value of the loans that each lending bankforgave. In 9 cases, we obtained the amount of loans forgiven by the lead lending banks,and in 6 cases we obtained the amount of loans forgiven by the second lending banks.
On average, the lead lending banks forgave loans worth 152 billion yen. In all of the 9cases, the lead lending banks forgave loans of more than 50 billion yen. Panel B also
shows that the lead lending banks contributed about 65 percent of the loan reduction.
Panel C of Table 2 provides information on the relationship between the borrowing
firms and their main lending banks. The first two rows show the ratio of loans owned byeach individual bank to the total debt of the firm. It follows from Panel B and Panel Cthat both the lead lending banks and the second lending banks take disproportionate
responsibility for the firms’ bad loans. In particular, the lead lending banks play a much
more important role in debt forgiveness than do the other lending banks. The last two
rows of Panel C show that both the lead lending banks and the second lending banks
own considerable shares of the borrowing firms. Although not reported in the paper, we

15find that in 15 cases the lead lending banks are the largest shareholders among bankshareholders of the firms. Furthermore, we find that, in all of the 16 cases, more than
one director of the borrowing firms was dispatched from the lead lending banks. In 14
cases, the CEOs of the firms were dispatched from the lead lending banks. We conclude
that the borrowing firms had very close relationships with their lead lending banks prior
to debt forgiveness.
Lastly, Panel D of Table 1 provides our measures of the unhealthiness of the banks’financial conditions. We use two measures: One is the ratio of bad loans to the totalloans of the bank (the bad loan ratio), and the other is the ratio of net bad loans to thetotal loans of the bank (the net bad loan ratio). Net bad loan refers to bad loans minus
reserves for loans. We collected information on the two ratios from the financial
statements of each bank. The bad loans used in this paper are so-called risk managementloans, which include loans to failed enterprises, loans on which payments are suspended
for more than three months, and loans with relaxed conditions (restructured).7 Other
things being equal, the difference between the liabilities and risk-free assets of the bank
(C in the model) increases as the bad loan ratio rises. In this sense, we think that these
two measures are appropriate proxies for the unhealthiness of the bank’s financial
conditions for the purpose of our empirical study.

4. Empirical Results

A. Stock Price Reaction of Lending Bank to Announcement of Debt Forgiveness7

For more details on bad loans made by Japanese banks, see Hoshi and Kashyap (2001,

Chapter 8). Risk management loans are the only loans for which we could havecomplete information regarding the annual bad loans of individual banks during oursample period.
16In order to examine the announcement effects of debt forgiveness on the stock pricesof the lending banks, we employ a standard event study methodology. In all cases, theevent date is the first date on which an announcement regarding the agreement of debt
forgiveness is released by Nihon Keizai Shimbun.
We calculate daily stock returns by using the closed price taken from Stock Price
CD-ROM of the Toyo Keizai Data Bank. In accordance with Musumeci and Sinkey(1990), Kracaw and Zenner (1996), and Dahiya, Saunders, and Srinivasan (2003), we
calculate the announcement abnormal return for a lending bank on any given date byusing the market model methodology. We use TOPIX as a proxy of the market portfolio.
The parameters of the market model are estimated over a 200-day period between day-220 and day -21. Throughout the paper, day -t means t days before the announcement
date (day 0), and day t means t days after the announcement date. The abnormal returnis computed as the difference between the actual return and the estimated return fromthe market model. The cumulative abnormal return is the sum of the abnormal returns
for the days in the relevant event window.8
First, we examine the announcement effect of debt forgiveness on a bank portfolio
consisting of both the lead lending banks and the second lending banks. Panel A of
Table 3 presents the daily abnormal returns of the bank portfolio in a 3-day event
window. Since we do not have the complete stock price data for one of the second
lending banks, the number of our sample banks is 31 (16 lead banks and 15 secondbanks). On average, debt forgiveness has a significant negative abnormal return of-1.01% on the announcement day for the bank portfolio. In Panel B of Table 3, wereport cumulative abnormal returns in three event windows of (-1, 1), (-1, 0), and (0, 1).

8

We also used the market-adjusted return model to calculate the abnormal returns, andobserved no significant difference in the results.
17

In the windows of (-1, 1) and (0, 1), the cumulative abnormal returns of the bankportfolio are significantly negative. Thus, we conclude that the average stock price ofthe lending banks significantly decreases in response to the announcement of debt
forgiveness. 9
Next, we separate the bank portfolio into two portfolios (a lead bank portfolio and asecond bank portfolio) and examine the announcement effect for each portfolio. Panel A
of Table 4 presents the average daily abnormal returns of each portfolio, and Panel B of
Table 4 presents the cumulative abnormal returns of each portfolio. The results showthat debt forgiveness has a significant negative announcement effect for the lead bankportfolio. For the second bank portfolio, the announcement effect is negative but
insignificant. The difference in announcement effect between the two portfolios may be
due to the difference in the contribution to debt forgiveness. As shown in Panel B of
Table 2, the lead lending banks made much larger contributions to debt forgiveness than
did the second leading banks.
Our model developed in Section 2 predicts that the stock price of the lending bankdecreases due to debt forgiveness under two assumptions; one is that the management of
the bank is not concerned with the shareholders’ wealth, and the other is that thefinancial condition of the lending bank is not healthy. These two assumptions appear tobe appropriate for our sample of Japanese banks for the following reasons.
Regarding the first assumption, managerial shareholdings have been traditionallyvery small in major Japanese banks. We find that the average managerial shareholdingof the lead banks is about 0.015% in our sample, which is negligibly small.10 In

9In our sample, the borrowing firms do not experience any significant announcement

effects of debt forgiveness.
10

Managerial Shareholding is defined as the aggregate percent of shares held by all

officers and directors of the bank.
18

addition, as shown in Panel C of Table 2, there are very close relationships between the
borrowing firms and their lead lending banks. In 2001, the Japanese Bankers
Association provided a guideline for out-of-court workouts, which says that the lendingbank provides debt forgiveness in order to help in the restructuring of the borrowing
firms and to increase the collection of loans made to the firms. Taking these facts into
account, it seems reasonable to suppose that the management of our sample banks
agrees to debt forgiveness with little concern for the shareholders’ interests.
Regarding the second assumption, as pointed out by Cargill (2000), Ueda (2000),and Hoshi and Kashyap (2001, Chapter 8), the financial conditions of Japanese banks
steadily worsened during the 1990s. Since Japanese economic performance has
worsened and Japanese land prices have gone down since the beginning of the 1990s,
Japanese banks experienced both poor performance and steady increases in bad loans
during the 1990s.11 Several Japanese banks failed in the late 1990s. In 1998 and 1999,
the Japanese Government injected public funds into many private Japanese banks inorder to improve their financial condition. We can say that, on average, our sample
banks were in a relatively unhealthy financial condition during our sample period.

B. Bank Financial Condition and Announcement EffectOur model predicts that the announcement-period stock return of the lending bank is
negatively related to the unhealthiness of the bank’s financial condition. This subsection
examines this prediction in detail. In the following analysis, we use both the lead
lending banks and the second lending banks in our sample of lending banks in order toimprove the stability of the tests. The total number of banks observed is 31.

11

The average after-tax net income of Japanese City banks has been negative since1995 except in 2000.
19

First, the 2-day (0, 1) cumulative abnormal return of each lending bank is regressedon its bad loan ratio (BLR) and net bad loan ratio (NBLR). We use the 2-day (0, 1)
cumulative abnormal return as a proxy for the magnitude of the announcement effectbecause it is the most significant.12
The regression result associated with BLR is given by
CAR=1.04-0.40 (BLR), R2=0.13.

(12)

The t-value of the coefficient of BLR is -2.14, which is significant at the 5% level. The
regression result associated with NBLR is
CAR=3.17-0.34 (NBLR), R2=0.19.

(13)

The t-value of the coefficient of NBLR is -2.57, which is also significant at the 5% level.
Consistent with our prediction, the announcement effect of debt forgiveness on the stock
price of the lending bank is negatively related to BLR and NBLR, both of which areappropriate proxies for the unhealthiness of the banks’ financial conditions.
As summarized in Table 1, our model says that the lending bank experiencing a
positive announcement effect is in a relatively healthy financial condition, while thebank experiencing a negative announcement effect is in a relatively unhealthy financial
condition. We separate the whole bank sample into two groups according to the sign of
the announcement effect, and examine the difference in the unhealthiness of thefinancial conditions between the two groups. The negative-CAR group consists of 22
lending banks (11 lead banks and 11 second banks) that experience negative
announcement effects in the 2-day event window of (0, 1). The positive-CAR groupconsists of 9 lending banks (5 lead banks and 4 second banks) that experience positive
announcement effects.

12

The results are not essentially different when we use other event windows of (-1, 1)

and day 0.
20

Table 5 shows that both the bad loan ratio (BLR) and the net bad loan ratio (NBLR)
are significantly higher for the negative-CAR group than for the positive-CAR group.
The lending banks experiencing positive announcement effects are in healthier financial
condition than the banks experiencing negative announcement effects.
We also separate the whole bank sample into two groups according to the magnitudeof the announcement effect, and examine the difference between the two groups in theunhealthiness of their financial condition. The low-CAR group consists of 16 lendingbanks (11 lead banks and 5 second banks) with relatively small cumulative abnormal
returns, and the high-CAR group consists of 15 lending banks (5 lead banks and 10
second banks) with relatively large cumulative abnormal returns. Table 6 shows thatboth the bad loan ratio (BLR) and the net bad loan ratio (NBLR) are significantly higher
for the low-CAR group than for the high-CAR group. On average, the lending banks
experience relatively small announcement effects when their financial conditions are
relatively unhealthy.
The results shown in Table 5 and Table 6 support the prediction that there is anegative relationship between unhealthiness of the financial conditions of the lendingbanks and the announcement effect of debt forgiveness on the banks.

5. Conclusion

This paper examined how debt forgiveness affects the stock price of a lending bank.
Our theoretical model suggests that whether the stock price of the lending bankincreases in response to debt forgiveness depends upon the bank’s financial condition.
When the financial condition of the bank is relatively healthy, debt forgiveness has apositive effect on the bank’s stock price. On the other hand, debt forgiveness has anegative effect on the bank’s stock price when the bank’s financial condition isrelatively unhealthy. Our model predicts a negative relationship between the21announcement effect of debt forgiveness on the lending bank and the unhealthiness ofthe bank’s financial condition.
Using Japanese data, we empirically examined the stock price behavior of lendingbanks surrounding the announcements of out-of-court debt forgiveness in the period
between 1995 and 2003. We found that, on average, the lead lending banks experience a
negative announcement effect to debt forgiveness. Taking into account the fact that thefinancial conditions of Japanese banks worsened in the late 1990s, the negative
announcement effect on the lending banks is consistent with the prediction of the model.
We also examined the relationship between the announcement effect of debt
forgiveness on the lending bank and the bank’s financial condition. We found that themagnitude of the announcement effect becomes smaller as the bank’s bad loan ratio
rises. We also found that the lending banks experiencing negative announcement
effects have relatively higher bad loan ratios than do the banks experiencing positive
announcement effects. These results support the prediction of a negative relationshipbetween the announcement effect on the bank and the unhealthiness of the bank’s
financial condition.
[2003.12.9 666]

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24

date-0date-1

Debt Renegotiation

date-2Choose Strategy j∈{S, R}

Debt Matures
Cash flow Realization

Figure 1: Sequence of EventsC*

0

Healthy

Moderately Healthy(Y-pX)/(1-p)

Moderately Unhealthy

D

Unhealthy

C

Distressed

Figure 2: Definition of Financial Conditions of the Bank

Financial Condition

Loan Value

Equity Value of the Bank

Probability of Default

Healthyincreaseincreaseno change (zero)

Moderately Healthy

increaseincreasedecrease to zero

Moderately Unhealthy

increasedecreasedecrease to zeroUnhealthy

increasedecrease to zeroincrease to one

Distressed

increaseno change (zero)no change (one)Table 1: Effects of Debt Forgiveness to the Lending Bank

25

Table 2: Descriptive Statistics of the Sample
The sample contains 16 cases of out-of-court debt forgiveness totaling more than 100
billion yen that were agreed to in Japan from 1995 to 2003. The lead (second) bank isthe bank which has made the largest (second largest) loan to the borrowing firm among
the lending banks that have made loans to the firm. In panel C, the loan ratio is the ratioof the loans owned by each individual bank to the total debt of the borrowing firm.
Bank equity holding is the percentage of shares of the borrowing firm held by eachindividual bank. In Panel D, the bad loan ratio is the ratio of bad loans to the total loansof each bank, and the net bad loan ratio is the ratio of bad loans less loan reserves to thetotal loans of each bank. The bad loan figure is the sum of loans to failed enterprises,loans on which payments have been suspended for more than three months, and loans
with relaxed conditions (restructured).
Panel A: Distribution of the Sample by Year and Industry
1995-1997

1998-1999

2000-2001

Construction

1

4

3

0

8

Real Estate

0

1

0

2

3

Retail & Wholesale Trade

0

1

1

2

4

Other Financing Business

1

0

0

0

1

Total

2

6

4

4

16

Industryyear

2002-2003

Total

Panel B : Statistics of Debt Forgiveness

MeanMedian

Min.

Max.

253

200

105

640

Amount (Billion Yen)

152

120

50

342

Ratio of Total Amount (%)

65

61

38

85

Amount (Billion Yen)

38

35

15

78

Ration of Total Amount (%)

21

20

7

38

Total Amount (Billion Yen)
Lead Bank (9 observations)

Second Bank (6 observations)26Panel C: Relationship between Firms and Lending Banks
MeanMedianMin

Max

Lead Bank: 16 observations

26.62

26.41

11.10

51.12

Second Bank: 16 observations

11.52

11.36

3.24

23.03

Lead Bank: 16 observations

4.37

4.67

3.20

4.92

Second Bank: 11 observations

3.03

2.90

2.10

4.99

Loan ratio (%)

Bank Equity Holding (%)

Panel D: Financial Conditions of Lending Banks
MeanMedianMin

Max

Lead Bank: 16 observations

6.24

5.27

2.55

13.48

Second Bank: 16 observations

7.43

6.65

2.64

17.24

Lead Bank: 16 observations

3.55

2.55

0.17

10.17

Second Bank: 16 observations

3.93

3.99

0.27

10.58

Bad Loan Ratio (%)

Net Bad Loan Ratio (%)

27

Table 3: Announcement Effects of Debt Forgivenesson Stock Prices of Lending BanksThis table presents the announcement effects of debt forgiveness on the stock price of aportfolio of both the lead lending banks and the second lending banks. Panel A describes thedaily abnormal returns of a portfolio of the lending banks in a 3-day event window around thedate of out-of-court debt forgiveness. Panel B describes the cumulative abnormal returns inthree event windows. The abnormal return is computed as the difference between the actual
return and the estimated return from the market model. The cumulative abnormal return is thesum of the abnormal returns for the days in the relevant event window. The t-value inparentheses is the standard statistic for testing the null hypothesis that each abnormal return or
cumulative abnormal return is equal to zero.

Panel A : Daily Abnormal Returns for Lending Banks
Day(31 samples)Day -1Day 0
Day 1-0.035%(- 0.060)-1.014%(-1.756)**-0.658%(-1.139)

Panel B : Cumulative Abnormal Returns for Lending Banks
Event Window(31 samples)
3-day window (-1 , 1)
2-day window (-1 , 0)
2-day window (0 , 1)

-1.707%(-1.706) **-1.049%(-1.284)-1.673%(-2.047) *****Significant at the 5% level
Significant at the 10% level28

Table 4: Announcement Effects of Debt Forgivenesson Stock Prices of the Lead Banks and Second BanksThis table presents the announcement effects of debt forgiveness on the stock prices of aportfolio of the lead lending banks and a portfolio of the second lending banks, respectively.
Panel A describes the daily abnormal returns of each portfolio in a 3-day event window aroundthe date of out-of-court debt forgiveness. Panel B describes the cumulative abnormal returns ofeach portfolio in three event windows. The abnormal return is computed as the difference
between the actual return and the estimated return from the market model. The cumulative
abnormal return is the sum of the abnormal returns for the days in the relevant event window.
The t-value in parentheses is the standard statistic for testing the null hypothesis that eachabnormal return or cumulative abnormal return is equal to zero.

Panel A : Daily Abnormal Returns
DayDay -1
Day 0
Day 1

Lead Banks(16 samples)

Second Banks(15 samples)- 0.163 %(- 0.236)- 1.542 %(- 2.233)**- 0.830 %(- 1.202)

0.102(0.147)- 0.451(- 0.646)- 0.475(- 0.680)

Panel B : Cumulative Abnormal Returns
Lead Banks

Second Banks

Event Window(16 samples)(15 samples)

3-day window (-1 , 1)

- 2.535 %(- 2.119)**- 1.705(- 1.745)- 2.372 %(- 2.429)**- 0.824(- 0.681)- 0.349(- 0.353)- 0.926(- 0.938)

2-day window (-1 , 0)
2-day window (0 , 1)***

Significant at the 5% level
Significant at the 10% level29

Table 5: Announcement Effect and Financial Conditions of Lending Banks Ⅰ:
The Negative-CAR Group and the Positive-CAR Group
This table presents the unhealthiness of the financial conditions of lending banks grouped
according to the sign of the announcement effect. The Negative-CAR group consists of 22
lending banks that experience negative cumulative abnormal returns in a 2-day event window of(0, 1). The positive-CAR group consists of 9 lending banks that experience positive cumulative
abnormal returns in a 2-day event window of (0, 1). Average CAR means the average
cumulative abnormal returns for each group. Average BLR (NBLR) means the average bad loan
ratio (net bad loan ratio) for banks in each group. Welch’s t-test is used to determine thedifference of the average BLR and NBLR between the two groups.
Panel A : Announcement Effect and Bad Loan Ratio
Negative-CAR group(22 samples)
Average CAR-3.506%
Average BLR
Test Statistics

Positive-CAR group(9 samples)
2.809%

7.372％

5.451%
1.829**

Panel B : Announcement Effect and Net Bad Loan Ratio**

Negative-CAR group(22 sample)

Positive-CAR group(9 samples)

Average CAR-3.506%2.809%

Average NBLR
Test Statistics

4.274％

2.482%**

1.935

Significant at the 5% level.

30

Table 6: Announcement Effect and Financial Conditions of Lending Banks Ⅱ:
The-High CAR Group and the Low-CAR Group
This table presents the unhealthiness of the financial conditions of lending banks grouped
according to the magnitude of the announcement effect. The Low-CAR group consists of 16
lending banks that experience relatively low cumulative abnormal returns in a 2-day event
window of (0, 1). The High-CAR group consists of 15 lending banks that experience relatively
high cumulative abnormal returns in a 2-day event window of (0, 1). Average CAR means theaverage cumulative abnormal returns for each group. Average BLR (NBLR) means the average
bad loan ratio (net bad loan ratio) for the banks in each group. Welch’s t-test is used todetermine the difference of the averages BLR and NBLR between the two groups.
Panel A : Announcement Effect and Bad Loan Ratio

Average CAR

Low-CAR group(16 samples)-4.541%

Average BLR
Test Statistics

High-CAR group(15 samples)
1.388%

7.905%

5.651%**

1.755

Panel B : Announcement Effect and Net Bad Loan Ratio*

Low-CAR group(16 sample)

High-CAR group(15 sample)

Average CAR-4.541%1.388%

Average BLR
Test Statistics

4.688％

2.725%
1.785

Significant at the 5% level.

31**

Discussion Paper
No.
2002・1

AuthorNobuyuki Isagawa

2002・2

Nobuyuki Isagawa

2002・3Mahito Okura

2002・4

Elmer Sterken
Ichiro Tokutsu
Mahito Okura
Mahito Okura
Nobuyuki Isagawa
Koji Okubayashi
Toshinori Takashina

2002・5
2002・6
2002・7
2002・8

2002・9Hajime Shimizu

2002・10 Nobuyuki Isagawa
2002･11

Nobuyuki Isagawa

2002･12Kenji Kutsuna
Richard Smith

2002・13 Kunio Miyashita
2002・14 Hajime Shimizu
2002・15 Hajime Shimizu
2002・16 Koji Okubayashi
2002・17 Fumitoshi Mizutani
Shuji Uranishi
2002・18 Kazuhisa Otogawa
2002・19 Atsuo Takenaka
2002・20 Tsuneo Nakano

2002・21 Tsuneo Nakano
2002・22 Fumitoshi Mizutani
Shuji Uranishi
2002・23 Atsushi Takao
Mahito Okura
2002・24 Fumitoshi Mizutani
2002・25 Fumitoshi Mizutani
Takuya Urakami
2002・26 Yasuyuki Miyahara
2002・27 Nobuyuki Isagawa
2002・28 Mitsutoshi Hirano

Title
Cross Holding of Shares, Unwinding Cross Holding of
Shares, and Managerial
Entrenchment
A Theory of Stock Price Behavior following Repurchase
Announcements
An Equilibrium Analysis of the Insurance Market
with Vertical Differentiation
What are the determinants of the number of bankrelations of Japanese firms?
Review Article：Adverse Selection in Insurance Market
Welfare Effect of Firm Size in Insurance Market
Does Investment Horison Affect Investment Strategy ?
Research Report of Careers and Employment Process ofWorkers over 60 years old :a Case of a Japnaese
Manufacturing Company
On the Existence of Tax Equilibrium : Incomplete Market
with Capital Income Tax
Cost of Financial Distress and Debt Restructuring :Debt Forgiveness and Equity-for-Debt Swap
Open-Market Repurchase Announcements, Actual
Repurchases, and Stock Price Behavior in Inefficient
Markets―revised version of No.2001･36―
Why Does Book Building Drive Out Auction Methodsof IPO Issuance?
Evidence and Implications from Japan
International Logistics and Modal Choice
Incomplete markets with capital income tax and public
goods
On the possibility of Pareto improving of tax-equilibrium
China-Japan Comparison of Work Organization
The Post Office vs. Parcel Delivery Companies:
Competition Effects on Costs and Productivity―revised version of No.2001･33―
Earnings Forecast and Earnings Management of JapaneseInitial Public Offerings Firms
The Classification of Foreign R&D Units
The Dutch East India Company and its Corporate
Governance―revised version of No.2000･40―
The British East India Company and its Corporate
Governance
Privatization Effects on TFP Growth and Capital
Adjustments
Some Notes on the Privatization of Postal Life Insurancein JapanPrivately Owned Railways’ Cost Function, Organization
Size and Ownership
A Private-Public Comaprison of Bus Service Operators
Principal-Multiagent Relationships with Costly
Monitoring
Unwinding of Cross Shareholding under Managerial
Entrenchment
Contingency Model for Personnel Grading System―Issues on Design and Management for Qualification
System and Job Grading System―

Date(in Japanese)

1／ 2002(in Japanese)

1／ 20022／20023／2002(in Japanese)(in Japanese)(in Japnaese)

3／20023／20023／20024／2002(in Japnaese)

4／2002(in Japnaese)

4／20025／20025／2002(in Japnaese)(in Japnaese)

6／20026／20026／20027／20027／20028／2002(in Japanese)(in Japanese)

8／20028／2002(in Japanese)

8／20028／2002(in Japanese)

9／20029／20029／2002
10／2002
10／2002(in Japanese)

11／2002

Discussion Paper
No.
Author
2002・29 Atsushi Takao
2002・30 Yasuhiro Shimizu
2002・31 Hideki Murakami
2002・32 Atsushi Takao

2002・33 Nobuyuki Isagawa

2003・5

Takuji Hara
Katsuhiko Kokubu
Kazuhiro Tanaka
Fumitoshi Mizutani
Shuji Uranishi
Yang Jia Yin
Koji Okubayashi
Mitsutoshi Hirano

2003・6

Kazuhisa Otogawa

2003・7

Nobuyuki Isagawa
Tadayasu Yamashita
Kenji Kutsuna
Marc Cowling

2002・34
2003・1
2003・2
2003・3
2003・4

2003・8

2003・9

Noriko Masumura

2003・10 Nobuyuki Isagawa
Katsuhiko Okada
2003・11 Mitsutoshi Hirano
2003・12 Kenji Kutsuna
Richard Smith
2003・13 Kenji Kutsuna
Janet Kiholm Smith
Richard L. Smith
2003・14 Hideya Kubo
2003・15 Hideki Murakami
2003・16 Norio Kambayashi
2003・17 Nobuyuki Isagawa
2003・18 Nobuyuki Isagawa
2003・19 Huang Lin
2003・20 Koji Okubayashi
2003・21 Nobuyuki Isagawa

Title
On the Emergency Effect of the late FUKUZAWA,
Yukichi in Introducing of Modern Insurance into Japan
Amortization of Intangible Assets before Newark
Morning Ledger
An Economic Analysis of Duopolistic Competition
between Gulliver and Dwarf airlines:
The case of Japanese Domestic Air Markets
Simulation Model to Consider the Penetration of Modern
Insurance in Japan −Confirmation of Emergence andPhase Transition of New Japanese Risk-Bearing System
by Evolutional Economics
Mutual Shareholding and Unwinding of Mutual
Shareholding as Stockpile for Business Recovery
TLOs in Japan in the life science area : present and future
Environmental Accounting for Corporate Management
Embeddedness and Entrenchment of Managers
The Effects of Privatization on TFP Growth and Capital
Adjustments
Labour Turnover of Japan-Affiliated Companies inShanghai
Generation and Resolution of Asymmetric Information in
Human Resource Management –In the Cases of Job
Rotation in Two Retailers in JapanMarket Liquidity around Quarterly Earnings
Announcements
Lender’s Risk Incentive and Borrower’s Risk Incentive
Determinants of Small Business Loan Approval:
Evidence from Japanese Survey after 1997 Financial
CrisisVoluntary Corporate Disclosure and the Cost of Debt:
The Case of Quarterly Reporting
Corporate Financial Strategy and Stock Price Behavior
in a Noise Trader Model with Limited Arbitrage
Two Modes of Economic Organization in the Duality
Principle and Asymmetric Personal Information
Why Does Book Building Drive Out Auction Methods of
IPO Issuance? Evidence from Japan (Revised version)
Banking Relationships and Access to Equity CapitalMarkets:
Evidence from Japan’s Main Bank System
The Present Condition and Problem of JapaneseCorporate Pension Systems
An empirical analysis of the spillover and dynamic
effects of low-cost airline’s presence on rival’s price:
US duopoly case
Japanese Style of Management Education
Unwinding of Cross Shareholding for BusinessRestructuring
Unwinding of Cross Shareholding: A Signalling
Approach
Strategies and Store Development of Carregour in the
Chinese Continent
Emp lo yme nt Situation and Measur es for
In cr easing Emp lo yme nt Oppor tun ities;
Th e Cas e o f Jap an
L end er ’s Risk In cen tiv e and D eb t Forg iv ene ss(in Japanese)Date
11／2002(in Japanese)

11／2002
11／2002(in Japanese)

12／2002

12／2002(in Japanese)(in Japanese)(in Japanese)

12／2002
1／20032／20032／2003(in Japanese)

3／2003(in Japanese)

3／20033／2003(in Japanese)

3／20033／2003(in Japanese)

4／20034／2003(in Japanese)

5／20035／20035／2003(in Japanese)

6／2003(in Japanese)

7／2003(in Japanese)(in Japanese)

7／20037／2003(in Japanese)

7／2003(in Japanese)

8／20038／20038／2003

Discussion Paper
No.
Author
2003・22 Keizo Mizuno
Fumitoshi Mizutani
Noriyoshi Nakayama
2003・23 Kenji Kutsuna
Nobuyuki Harada

2003・24 Shigeki Sakakibara
Takashi Yamasaki
2003・25 Michihiro Ozawa
2003・26 Atsushi Takao

2003・27 Koji Okubayashi
2003・28 Nobuyuki Isagawa
Tadayasu Yamashita

Title
Industrial Diversity and Metropolitan Unemployment
Rate

Date
9／2003

Small Business Managers as Latent Informal Investors inJapan:
Evidence from a country with a bank-based financial
systemThe First Half of The Year Effect in Japanese Stock (in Japanese)
MarketAudit Risk Model with conditional probability and the (in Japanese)
importance of risk assessment
A Note on the Securitilization of Catastrophe Risk
(in Japanese)〜 A Study by Especially Attention -Focusing toInsurance Linked Securities 〜
Industrial Relations in a Changing Economy: Japan’s
Experience
Debt Forgiveness and Stock Price Reaction of Lending
Bank: Theory and Evidence from Japan

9／20039／2003
10／2003
10／2003

11／2003
12／2003