Blockholder and Firm Performance: Quasi-Experiment Using Japanese Bank Mergers

Using the Japanese bank merger dataset for the 2000s, this paper investigates whether the reduction of the ownership ratio by the blockholder affects companies’ operating performance and bank-firm relationships. In Japan, banks are prohibited from holding more than 5% of the business company’s equity. When two or more banks consolidate, the post-merged bank must sell up to 5% of its shares. This rule enables us to remove the endogeneity between the block-shareholder and operating performance, which is where previous literature suffers endogeneity problems. The findings can be summarized as follows. First, to mitigate the endogeneity concern, we employ the regression discontinuity design (RDD) and find that subsequent operating performance has a non-linear relationship with the cumulative shareholding ratio in the pre-merger period. Second, we investigate the bank-firm relationship and find that the lending amount from banks suffers a decline due to the 5% rule after the banks merger.