ABSTRACT
This chapter first discusses the characteristics of capital market-based financial systems and bank-centered financial systems. The bank-centered financial system is where financial transactions in a country are mainly conducted through financial intermediation by banks. Among the various roles played by the main banks, this chapter focuses on their role in hedging two types of financial risks faced by firms: financing risk and bankruptcy risk. The main bank system in Japan is based on the relationship between firms and banks that symbolizes the bank-centered financial system. Japanese firms are considered to have taken advantage of the relationship with their main banks in hedging this risk as well. Taking into account the fact that modern corporations generate value for various stakeholders and the possibility that firms continuity is emphasized particularly in Japan, they can say that the bank-centered financial system is an infrastructure suited to Japanese firms.
