The Role of Banks in Reducing the Costs of Financial Distress in Japan
AbstractThis paper explores the idea that financial distress is costly because free-rider problems and information asymmetries make it difficult for firms to renegotiate with their creditors in times of distress. We present evidence consistent with this view by showing Japanese firms with financial structures in which free-rider and information problems are likely to be small perform better than other firms in industrial groups-those with close financial relationships to their banks, suppliers, and customers-invest more and sell more after the onset of distress than non-qroup firms. Moreover, firms that are not group members, but nevertheless have strong ties to a main bank also invest and sell more than firms without strong bank ties.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3435.
Date of creation: Sep 1990
Date of revision:
Publication status: published as Journal of Financial Economics Volume 27 1990, pp. 67-88 September 1990
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- Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
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