The Impact of Competition in the Japanese Underwriting Market

Abstract: The 1993 Japanese financial system reform allowed banks to provide underwriting services in the domestic market for corporate bonds through bank-owned security subsidiaries. This paper explores how competition resulting from bank entry affected underwriting commissions for corporate bonds. It also examines empirically whether underwriting commissions for corporate bonds fell as a direct result of this bank entry. The empirical results show that bank entry lowers underwriting commissions and, moreover, commissions fall as the banks ’ share in the underwriting market increases. Underwriting commissions charged by banks are found to be significantly lower than those charged by securities companies