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Financial regulation and banking sector performance: a comparison of bad loan problems in Japan and Korea

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  • Chan Huh
  • Sun Bae Kim
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    Abstract

    We estimate the bad loan rate in Japan and Korea for 1973-1992 using data on defaults on notes issued by the corporate sector. This method exploits institutional features common in both countries which suggest a close linkage between default on notes and default on bank borrowing. Our main findings are as follows. First, the pattern of the estimated bad loan rate series generally conforms to past business cycle patterns in both countries. Second, the bad loan rate is substantially higher in Korea than Japan. Lastly, a much tighter linkage is observed for Japan between the bad loan rate and a set of plausible economic explanatory variables. We offer some interpretation for these findings.

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    File URL: http://www.frbsf.org/publications/economics/review/1994/94-2_18-29.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1994)
    Issue (Month): ()
    Pages: 18-29

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    Handle: RePEc:fip:fedfer:y:1994:p:18-29:n:2

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    Keywords: Bank loans ; Korea ; Japan ; Banks and banking - Pacific Basin ; Pacific Area;

    References

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    1. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
    2. Lichtenberg, Frank R. & Pushner, George M., 1994. "Ownership structure and corporate performance in Japan," Japan and the World Economy, Elsevier, vol. 6(3), pages 239-261, October.
    3. Sheard, Paul, 1989. "The main bank system and corporate monitoring and control in Japan," Journal of Economic Behavior & Organization, Elsevier, vol. 11(3), pages 399-422, May.
    4. Sadahiko Suzuki & Richard W Wright, 1985. "Financial Structure and Bankruptcy Risk in Japanese Companies," Journal of International Business Studies, Palgrave Macmillan, vol. 16(1), pages 97-110, March.
    5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
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    Cited by:
    1. Harvie, Charles & Lee, Hyun-Hoon, 2003. "Export-Led Industrialisation and Growth - Korea's Economic Miracle 1962-89," Economics Working Papers wp03-01, School of Economics, University of Wollongong, NSW, Australia.
    2. Harvie, Charles & Pahlavani, Mosayeb, 2006. "Sources of Economic Growth in South Korea: An Application of the ARDL Analysis in the Presence of Structural Breaks - 1980-2005," Economics Working Papers wp06-17, School of Economics, University of Wollongong, NSW, Australia.
    3. Pierre-Guillaume Méon & Laurent Weill, 2005. "Can mergers in Europe help banks hedge against macroeconomic risk?," DULBEA Working Papers in, ULB -- Universite Libre de Bruxelles.
    4. Harvie, Charles & Pahlavani, Mosayeb, 2006. "Testing for Structural Breaks in the Korean Economy 1980-2005: An Application of the Innovational Outlier and Additive Outlier Models," Economics Working Papers wp06-09, School of Economics, University of Wollongong, NSW, Australia.

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