The Low 'Bank-Dependence Ratio' and Recent Further Increase in the 'Independence of Firms from Banks'

This is the first of the 4 discussion papers that, together with the Introduction and Summary paper (Miwa, 2010c), comprise the report of my recent investigation: "A Study of Financing Behavior of Japanese Firms with Firm-Level Data from the Corporate Enterprise Quarterly Statistics ? 1994~2009". A basic premise to most studies of Japanese financial phenomena has been the dominant role played by banks. Hoshi and Kashyap [2001, p.310] wrote that banks "were the only game in town". Observers argue that this bank dominance continued even after the "financial liberalization" of the 1980s, through which the largest firms obtained access to international capital market. Using firm-level financial data from the Hojin Kigyo Tokei Kiho (Corporate Enterprise Quarterly Statistics) of the Ministry of Finance, I find that the ratio of zero-short-term-borrowing firms is highest, 50% in 1998 and two-thirds in 2008, among the smallest firms. I also find the average (short-term bank borrowing)/(total asset) ratio was lowest among these firms. Much the same phenomena characterize the patterns of long-term-borrowing ratio. Under the "zero-interest-rate, quantity easing" monetary policy, the low "bank dependence ratio" among firms fell further. Using annual financial data from Corporate Enterprise Annual Statistics since the 1960s, I also show that even in the 1960s the bank-dependence ratio was lower than commonly perceived. Since then, it has declined consistently. Those findings constitute a fundamental challenge to the conventional wisdom about the financial market and financial regulation in Japan.