#97-DOF-27 "Relational Financing as an Institution and its Viability
            under Competition" 
           (Masahiko Aoki, Sendar Dinc, September 1997.) 

A WHOLE SENTENCE

ABSTRACT

    This paper presents a new, generic definition of relational 
financing that may cover a wide range of financial practices in 
different economies, ranging from the Japanese main bank relationship,
to bank lending to smaller firms, and venture capital in the U.S. It 
then discusses various incentives of the financier to commit to 
relational financing and reviews the recent literature on issues about
how those incentives are affected by increasing competition.  One 
useful insight is that increasing competition is not necessarily 
harmful to relational financing.  It then applies theoretical insights
to problems of institutional transition in two Asian economies. It 
argues that the Japanese financial system will retain some aspects of 
relational financing even after the impending financial deregulation, 
although there will be a significant reduction in the bank s role in 
corporate governance. Finally, it assesses that the ongoing experiment
of main bank relationship in China may be one of viable financial 
options for successful transition of the planned economy to a  market 
economy, but cautions that more competition in the banking sector is 
necessary for relational banking to emerge as an institution.