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More evidence on the link between bank health and investment in Japan

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  • Michael S. Gibson
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    Abstract

    Among stock-market-listed Japanese firms in 1994-95, the financial health of the firm's main bank did not significantly affect its investment behavior, after controlling for stock market valuation and cash flow. However, among the subset of bank-dependent firms, investment was lower by over 50 percent at firms that have one of the lowest-rated banks as their main bank. Because low-rated banks are smaller and deal with fewer firms, and because bank-dependent firms themselves tend to be smaller than non-bank-dependent firms, the aggregate effect on business investment in 1994-95 that I identify is tiny. These results contrast with Gibson (1995), a similar study which, using data for 1991-92, found a small effect of poor bank health on investment for all stock-market-listed Japanese firms and no difference between bank-dependent and non-bank-dependent firms.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/549/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/549/ifdp549.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 549.

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    Date of creation: 1996
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    Handle: RePEc:fip:fedgif:549

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    Keywords: Japan ; Bank investments;

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    1. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
    2. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
    3. Frank R. Lichtenberg & George. M Pushner, 1995. "Ownership Structure and Corporate Performance in Japan," NBER Working Papers 4092, National Bureau of Economic Research, Inc.
    4. 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.
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    Cited by:
    1. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
    2. Hesna Genay, 1998. "Assessing the condition of Japanese banks: how informative are accounting earnings?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 12-34.

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