Corporate governance, relational banking and R & D: Evidence from Japanese large firms in the 1980s and 1990s

We investigate the effects of the Japanese corporate governance structure on corporate investments, especially R & D, dividing Japanese high R & D firms into two groups, i.e. young growing firms and old mature firms. The main bank relationship mitigates the asymmetric information problem for young growing firms' R & D expenditure in the 1990s. Portfolio investors strengthen the cash constraints on R & D, while stable shareholders offset the myopic pressure by portfolio investors. We also show some evidence that stable shareholders induced old mature firms to overinvest during the bubble economy period.