A Note on Shareholder Oversight and the Regulatory Environment: The Japanese Banking Experience

During a period where Japanese banks operated under a less restrictive regulatory environment, 1986-88, we find positive relationships between bank risk and ownership concentration. This empirical evidence reveals shareholder activism by the largest shareholders. During the periods immediately before and immediately after this particular subperiod, which are characterized by stricter regulatory environments, we do not observe evidence of shareholder activism. Taken together, these results are consistent with the argument that restrictive regulation and shareholder oversight are substitutes for one another. Time-series results and bank performance results yield consistent evidence.