Bank Health and Investment: An Analysis of Unlisted Companies in Japan
AbstractTo the extent that a borrower faces switching costs in a relationship with an individual bank, bank-specific financial health might affect a borrower's cost of funds. The costs would be particularly large for firms that have a close relationship with limited number of banks. The purpose of this paper is to investigate whether weakened financial conditions of banks reduced investment of small and medium firms in Japan. Estimating Tobin's Q investment functions, we examine the determinants of investment for unlisted Japanese companies in the late 1990s and the early 2000s. We find that several measures on bank-specific financial health have significantly large impacts on borrower's investment, even when observable characteristics relating to Tobin's Q, cash-flow, and leverage are controlled for. We also find that multiple banking relationships, which tend to have a negative impact on investment in general, may be beneficial in relieving a hold up problem when deteriorated bank health does matter.
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Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-029.
Length: 31 pages
Date of creation: Mar 2005
Date of revision:
Other versions of this item:
- Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Bank Health and Investment: An Analysis of Unlisted Companies in Japan," CIRJE F-Series CIRJE-F-330, CIRJE, Faculty of Economics, University of Tokyo.
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- Emmanuel De Veirman & Andrew T. Levin, 2012.
"When Did Firms Become More Different? Time-Varying Firm-Specific Volatility in Japan,"
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2012-43, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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- Emmanuel de Veirman & Andrew Levin, 2012. "When Did Firms Become More Different? Time-Varying Firm-Specific Volatility in Japan," DNB Working Papers 351, Netherlands Central Bank, Research Department.
- Shin-ichi Fukuda & Munehisa Kasuya & Kentaro Akashi, 2008.
"Impaired Bank Health and Default Risk,"
CIRJE-F-564, CIRJE, Faculty of Economics, University of Tokyo.
- Akiyoshi, Fumio & Kobayashi, Keiichiro, 2010. "Banking crisis and productivity of borrowing firms: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 22(3), pages 141-150, August.
- Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress (Subsequently published in "Journal of the Asia Pacific Economy" Vo.11, No.4, D," CARF F-Series CARF-F-042, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
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