Wealth effects of financial internationalization: a case of the Yen-Dollar Agreement between the United States and Japan

Abstract

The Yen-Dollar Agreement between the United States and Japan in 1984 was an epoch-making event in Japanese financial history. In spite of the importance of the Yen-Dollar Agreement for Japanese financial liberalization, there are few empirical studies about its effects. In this paper, we investigate the wealth effects of the Agreement on bank stockholders. Although we expect the negative impact of the intense competition on stockholders' wealth, our empirical results show that the Agreement produced positive wealth effects on bank stockholders. Our results suggest that the benefits of financial liberalization triggered by the Agreement were expected to outweigh the negative effect of the intense competition. This is one of the reasons why the liberalization and internationalization of Japanese financial markets and institutions have been going more smoothly than expected.