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How much do bank shocks affect investment? Evidence from matched bank-firm loan data

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  • Mary Amiti
  • David E. Weinstein

Abstract

We show that supply-side financial shocks have a large impact on the investment decisions of firms. We do this by developing a new methodology to separate firms' credit shocks from loan supply shocks, using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks, as in Gabaix (2011). As a result, idiosyncratic bank shocks--movements in bank loan supply net of borrower characteristics and general credit conditions--can have large impacts on aggregate loan supply and investment. We show that these idiosyncratic bank shocks explain 40 percent of aggregate loan and investment fluctuations.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 604.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:604

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Keywords: Corporations - Finance ; Investments ; Bank loans - Japan ; Credit ; Bank size;

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References

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  1. Adam B. Ashcraft, 2003. "Are banks really special? New evidence from the FDIC-induced failure of healthy banks," Staff Reports 176, Federal Reserve Bank of New York.
  2. Francisco J. Buera & Roberto Fattal-Jaef & Yongseok Shin, 2014. "Anatomy of a Credit Crunch: From Capital to Labor Markets," NBER Working Papers 19997, National Bureau of Economic Research, Inc.
  3. Ashcraft, Adam B., 2006. "New Evidence on the Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 751-775, April.
  4. R. Glenn Hubbard & Kenneth N. Kuttner & Darius N. Palia, 1999. "Are there "bank effects" in borrowers' costs of funds? Evidence from a matched sample of borrowers and banks," Staff Reports 78, Federal Reserve Bank of New York.
  5. Bremus, Franziska & Buch, Claudia M. & Russ, Katheryn N. & Schnitzer, Monika, 2013. "Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity," Munich Reprints in Economics 20226, University of Munich, Department of Economics.
  6. Montgomery, Heather & Shimizutani, Satoshi, 2009. "The effectiveness of bank recapitalization policies in Japan," Japan and the World Economy, Elsevier, vol. 21(1), pages 1-25, January.
  7. Sudheer Chava & Amiyatosh Purnanandam, 2006. "The effect of a banking crisis on bank-dependent borrowers," Proceedings 1030, Federal Reserve Bank of Chicago.
  8. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
  9. Gan, Jie, 2007. "Collateral, debt capacity, and corporate investment: Evidence from a natural experiment," Journal of Financial Economics, Elsevier, vol. 85(3), pages 709-734, September.
  10. Masaya Sakuragawa & Yoshitsugu Watanabe, 2009. "Did the Japanese Stock Market Appropriately Price the Takenaka Financial Reform?," NBER Chapters, in: Financial Sector Development in the Pacific Rim, East Asia Seminar on Economics, Volume 18, pages 317-340 National Bureau of Economic Research, Inc.
  11. Xavier Gabaix, 2009. "The Granular Origins of Aggregate Fluctuations," NBER Working Papers 15286, National Bureau of Economic Research, Inc.
  12. Giovanni Dell'Ariccia & Raghuram Rajan & Enrica Detragiache, 2005. "The Real Effect of Banking Crises," IMF Working Papers 05/63, International Monetary Fund.
  13. Atif Mian & Asim Ijaz Khwaja, 2006. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," NBER Working Papers 12612, National Bureau of Economic Research, Inc.
  14. Michael Klein & Joe Peek & Eric Rosengren, 2000. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit," NBER Working Papers 7845, National Bureau of Economic Research, Inc.
  15. Tobias Adrian & Paolo Colla & Hyun Song Shin, 2012. "Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-9," NBER Working Papers 18335, National Bureau of Economic Research, Inc.
  16. Klingebiel, Daniela & Kroszner, Randall S & Laeven, Luc, 2006. "Banking Crises, Financial Dependence and Growth," CEPR Discussion Papers 5623, C.E.P.R. Discussion Papers.
  17. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October.
  18. Matias Braun & Borja Larrain, 2004. "Finance and the Business Cycle: International, Inter-industry Evidence," Finance 0403001, EconWPA.
  19. Claudia M. Buch & Katja Neugebauer, 2010. "Bank-Specific Shocks and the Real Economy," Working Paper / FINESS 2.3, DIW Berlin, German Institute for Economic Research.
  20. Daniel Paravisini, 2008. "Local Bank Financial Constraints and Firm Access to External Finance," Journal of Finance, American Finance Association, vol. 63(5), pages 2161-2193, October.
  21. Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
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Cited by:
  1. Franziska Bremus, 2013. "Cross-Border Banking, Bank Market Structures and Market Power: Theory and Cross-Country Evidence," Discussion Papers of DIW Berlin 1344, DIW Berlin, German Institute for Economic Research.
  2. Ongena, S. & Peydro, J.L. & Horen, N. van, 2013. "Shocks Abroad, Pain at Home? Bank-firm Level Evidence on the International Transmission of Financial Shocks," Discussion Paper 2013-040, Tilburg University, Center for Economic Research.
  3. Franziska Bremus & Claudia M. Buch, 2013. "Granularity in Banking and Growth: Does Financial Openness Matter?," Discussion Papers of DIW Berlin 1346, DIW Berlin, German Institute for Economic Research.
  4. Claudia M. Buch & Oliver Holtemöller, 2014. "Do We Need New Modelling Approaches in Macroeconomics?," IWH Discussion Papers 8, Halle Institute for Economic Research.

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