Institutions, Relationships and Bank Competition in Bond Underwriting Markets

This paper addresses the question of whether existing institutional di erences in banking systems a ect bank competition in capital markets. Post-deregulation competition between entrant commercial banks and incumbent investment banks in the Japanese corporate bond underwriting market is empirically analyzed and compared with the results of the U.S. study in (Yasuda 2001b). I nd that the certi cation e ect alone cannot explain both the di erences and similarities in the results. Drawing from the comparative banking literature, I interpret these ndings as coming from the presence of \betrayal cost" in Japan and its absence in the U.S. These di erences in the economic roles of relationships, as shaped by di erences in the history of banking and corporate nancing institutions, appear to persist in bank competition in the deregulated market. JEL Classi cation: G1, G2, G3, L1, L5, P5.