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The Evolving Japanese Financial System, and the Cost of Capital

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  • Jeffrey A. Frankel.
Abstract
The paper surveys the extensive literature on whether Japanese corporations in the 1980s were able to finance investment more easily than Americans. Along the way, it considers: the leverage of Japanese firms, dividend payout, equity price/earnings ratios, corporate taxation, cross-ownership, speculative bubbles, international capital mobility, the lower cost of financing investment internally and through "main bank" relationships, and the move to a more market-oriented system as these relationships, and the move to a more market-oriented system as these relationships appeared to break down in the 1980s. The conclusion that emerges from the literature is that the cost of finance in the 1980s was indeed lower in Japan than in the United States, by a variety of measures. But trends of domestic and international liberalization, followed by the events of 1990-92, have now raised the cost of capital in Japan to the U.S. market level. Some unanswered questions remain, regarding the reported shifts in reliance by firms between banking relationships versus securities markets.
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Suggested Citation

  • Jeffrey A. Frankel., 1992. "The Evolving Japanese Financial System, and the Cost of Capital," Center for International and Development Economics Research (CIDER) Working Papers C92-002, University of California at Berkeley.
    • Handle: RePEc:ucb:calbcd:c92-002
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    Cited by:

    1. Barry Eichengreen., 1993. "The Crisis in the EMS and the Transition to EMU: An Interim Assessment," Center for International and Development Economics Research (CIDER) Working Papers C93-022, University of California at Berkeley.
    2. Franklin Allen & Douglas Gale, 1998. "Bubbles and Crises The Economic Journal," Center for Financial Institutions Working Papers 98-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Franklin Allen & Douglas Gale, 2002. "Asset Price Bubbles and Stock Market Interlinkages," Center for Financial Institutions Working Papers 02-22, Wharton School Center for Financial Institutions, University of Pennsylvania.

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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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