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Financial Distress and Industry Structure: An inter-industry approach to the "Lost Decade" in Japan

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  • OGAWA Kazuo
  • Elmer STERKEN
  • TOKUTSU Ichiro

Abstract

This paper proposes a novel approach to investigating the propagation mechanism of balance sheet deterioration in financial institutions and firms, by extending the input-output analysis. First, we use input-output tables classified by firm size. Second, we link the input-output table with the balance sheet conditions of financial institutions and firms. Based on Japanese input-output tables, we find that the lending attitude of financial institutions affected firms' input decision in the late 1990s and the early 2000s. Simulation exercises are conducted to evaluate the effects of changes in the lending attitude toward small firms, as favorable as toward large firms, on sectoral allocations. We find that output was increased for small firms and reduced for large firms. The change in output was non-negligible, about 5.5% of the initial output of each sector. In particular it exceeded 20% in textile, iron and steel and fabricated metal products.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10048.

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Length: 43 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:eti:dpaper:10048

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  1. Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2007. "Trade credit and bank credit: Evidence from recent financial crises," Journal of Financial Economics, Elsevier, vol. 83(2), pages 453-469, February.
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