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Banks, Credit Supply, and the Life Cycle of Firms: Theory and Evidence from Late Nineteenth Century Japan

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  • Sergi Basco
  • John P. Tang

Abstract

How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. Our main result shows that, consistent with our theoretical model, the lifespan of firms decreases with bank capital. Capital-abundant regions have more firm destruction. For manufacturing, we document that these regions have both increased firm creation and destruction. These results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more economic dynamism.

Suggested Citation

  • Sergi Basco & John P. Tang, 2021. "Banks, Credit Supply, and the Life Cycle of Firms: Theory and Evidence from Late Nineteenth Century Japan," CEH Discussion Papers 02, Centre for Economic History, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:hpaper:095
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    More about this item

    Keywords

    credit supply; banks; liquidity constraints; firm dynamics; entrepreneurship;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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