DP1785 Monitoring the Monitors: Amakudari and the Ex-Post Monitoring of Private Banks

Author(s): Wolter Hassink, Adrian van Rixtel
Publication Date: January 1998
Keyword(s): Amakudari, Corporate Governance, Monitoring, prudential policy
JEL(s): E58, G30, G38
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1785

The paper investigates whether the Japanese monetary authorities use post-retirement employment of Ministry of Finance (MoF) and Bank of Japan (BoJ) officials as a policy instrument. The authors also investigate whether industrial groupings (keiretsu) and main banks have monitoring functions. They find that MoF and BoJ retirees do move into banks that perform badly in terms of profitability. Furthermore, the paper concludes that the movement of these retirees into the boards of private banks is positively related to specific main bank relationships. The hypothesis of monitoring by keiretsu is rejected, however. Finally, the paper finds that MoF/BoJ amakudari appointments have a positive impact on the development of lending to risky industries. In particular, this latter finding casts doubts on the credibility of the hypothesis that amakudari is used as an instrument of prudential policy.