An inverse relation between performance and managerial turnover at Japanese firms suggests that bank monitoring substitutes for other governance mechanisms (Kaplan, 1994; Kang & Shivdasani, 1995). Morck and Nakamura (1999), however, report that Japanese banks protect their self-interests as creditors rather than the interests of shareholders when appointing corporate directors. We re-examine data on top management changes at Japanese firms and find results consistent with this latter notion. Specifically, management turnover is conditionally related to a firm's ability to meet its short-term obligations rather than profitability or stock returns. Bank monitoring is therefore not a substitute for mechanisms that directly serve shareholders' interests. © 2003.
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