Do Bank Shocks Affect Firm Activities? A Survey

This paper presents an overview of the extant literature on the real impacts of financial constraints, with a particular focus on those originating from adverse shocks on bank lending. While numerous studies have been conducted to establish the causal linkage between negative fund supply shocks and various from activities, empirical studies that successfully identify loan supply shocks are, in our view, still in the development stage. The first part of this paper reviews the large body of literature on this topic and details how recent studies have attempted to overcome an important identification challenge: disentangling fund supply and demand shocks. After discussing various approaches ranging from natural experiments to the employment of extensive panel datasets, we introduce two studies from our own research, which employ a natural disaster in Japan as a natural experiment to study the real impact of financial constraints on the capital investment and export behaviors of firms.