JFRM  Vol.2 No.2 , June 2013
Market Discipline of Subordinated Debt: Empirical Evidence from Japanese Commercial Banks

We investigate if Subordinated Note and Debenture (SND) holders make banks to take less risk by analyzing balance sheet data of Japanese commercial banks. The cross-section regression shows that banks take less risk as the amount of SNDs increase. Specifically, it is shown that the loan risk measure (the ratio of impaired loans to the total loans) and the stock investment risk measure (the invested stocks over bank capital) have decreased with the increase of SND amounts. These results provide evidence that SNDs are effective instrument for the market discipline.

Cite this paper: Hwang, Y. & Min, H. (2013). Market Discipline of Subordinated Debt: Empirical Evidence from Japanese Commercial Banks. Journal of Financial Risk Management, 2, 38-42. doi: 10.4236/jfrm.2013.22006.

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