The Dark Sides of Institutionalized Informal Connections: Evidence from the Japanese Banking Sector in the Post-Bubble Crisis Era

This study focuses on the role of corporate political resources in shaping firm strategy in an extension of resource dependence theory. Using a sample of 92 regional banks for the period 1997-2004 in Japan, this paper explores the effect of amakudari (translated as the appointment of former bureaucrats to the boards of directors of private organizations) on the performance and managerial risk-taking of banks. We found that amakudari networks have a negative impact on a bank’s profitability in the post-bubble crisis era when firm-specific and other variables are controlled. In addition, the evidence shows that a bank appointing more ex-bureaucrats to its board of directors has a tendency to get involved in more risky lending activities. Furthermore, the empirical results of this study are also found to be robust using the Arellano-Bond GMM estimator.