International Finance Discussion Papers (IFDP)
July 1996 (Revised August 1997)
Regulation and the Cost of Capital in Japan: A Case Study
John Ammer and Michael S. Gibson
Abstract:
Over the last several years, a combination of loan losses and regulatory barriers to equity issuance have left Japanese banks starved for capital. In September 1995, the Mitsubishi Bank was permitted to issue a complicated convertible security in a foreign market. The results of simulations of the price path of the underlying equity imply that Mitsubishi Bank's annualized risk-adjusted cost of capital through this instrument was between 80 and 310 basis points higher than if the bank had instead been able to issue common stock at its current price.
Keywords: Convertible bond, Japanese banks, financial regulation, underpricing
PDF: Full Paper
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