The decline in bank-led corporate restructuring in Japan: 1981-2010
Using a unique dataset on all major corporate restructuring events in Japan between 1981 and 2010, we assess changes in the role of the main bank in guiding corporate turarounds, and the economic consequences of these changes for distressed firms. We identify firms in distress among all listed firms based on accounting data, and we separately identify firms undergoing corporate restructuring based on a newspaper search for the Japanese term “saiken”. Even though the ratio of distressed firms has not declined, the incidence of saiken restructuring by such firms has become less frequent after the 1990s, indicating a decline in the governance and rescue role of the main bank. When firms undergo saiken, they adopt real adjustments in terms of labor, assets and finance. While the intensity of these adjustments has also declined over time, saiken firms make more significant adjustments than distressed firms that do not undergo restructuring. The role of saiken was an important part of corporate renewal in Japan, and it has declined. In line with existing research, these findings underscore changes in Japanese corporate governance, in particular regarding the decline of the monitoring and restructuring function of the main bank.