Takeo Hoshi and Anil Kashyap have in the last chapter of their book; Corporate Financing and Governance in Japan explained the future of the Japanese Investment and Fund Raising market. This future prediction can be assessed taking into consideration the trend of the Japanese market from 1930’s where banks and traditional money lenders were predominant and trusted, to changes that took place and led to the gradual overtaking of the security market over the banking sector as means for fund raising and investment.
The early Japanese era saw Banks and traditional means as major avenues for investment and funding.
The Security market was unpopular and had no regulations or Corporate governance. The investors were mere profit sharing bystanders with no rights in the companies hence the banking sector started to gain importance. The 50’s and 60’s saw the banks as well established entities with regulations; hence the Government did not want to amend an already ongoing system. By 1968, Japan became the world’s second most strong economy and the banking sector was booming.
With the change of the U.S. structure, Japan too took a decision and established a securities market to provide investment and fund raising opportunities. The bigger Japanese companies jumped to this opportunity as this was a good way to finance their increasing needs for expansion. Over time, the Japanese security market grew stronger and overtook the banking sector as means of investment and fund raising. And with the turn of the 21st century, it is predicted that the future of the Japanese market will be one that is a securities dominated market.
TWO SURPRISING FEATURES OF THE JAPANESE TREND
Pre 1937, the principle mode of investment for households were securities. The security market had very less governance or regulations, yet they were popular. The surprising feature is the popularity of this sector even without governance or regulations. Logically speaking investment in any market that has less regulations or governance is unsafe.
The next surprising feature was the Banking Sector pre 1937 also. Banks are considered the safest option to invest money and obtain funds from around the world, yet the Japanese households preferred to keep their investments in postal saving schemes showing that the traditional methods were still dominant.
LINK WITH DISCUSSIONS
This Chapter speaks about the position of Japan’s household and corporate sector and highlighting changes that took place with respect to investments and funding over a period of 70 years, speaking about Pre Wartime Scenario where securities played a more important role and Post Wartime Scenario where banks established their supremacy … finally giving way to the securities market to once again establish their dominance.
The changes that gradually took place from traditional methods of savings and investment to more modernized governed modes. The strengthening of the Banking sector contributing to Japan being established as the world’s second most strongest economy in 1968, to the decline of the role of banks and the emergence of the securities market as the preferred mode for investment and funding, establishing the future of the Japanese economy to be prosperous and optimistic, yet uncertain.
Corporate Financing and Governance in Japan by Takeo Hoshi and Anil Kashyap (2001). The MIT Press, Cambridge, Mass. ISBN: 0-262-08301-9