Bank Ties and Bond Market Access: Evidence on Investment-Cash Flow Sensitivity in Japan
AbstractThe banking literature has established that banks can alleviate information asymmetries between lenders and borrowers, while the Q literature has used cash flow sensitivity analysis to test whether financing constraints hinder investment. This paper investigates whether bank ties in Japan were costly for mature and healthy firms in the 1980's and 1990's, and whether banks continued to facilitate investment once non-bank financing options became available. Using the explicit bond issuing criteria to solve the endogenous firm-sorting problem, I measure the investment-cash flow sensitivity of Japanese firms, and find it lowest for those firms known to have faced bond market constraints. I then find that the spread in sensitivity was much larger for main bank client firms, once bond market access is controlled for. This result, coupled with results on the relative profitability and bond activity of bank-affiliated firms, is consistent with banks capturing the net benefits of relationship lending during the period of bond market deregulation.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9644.
Date of creation: Apr 2003
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Other versions of this item:
- Patrick M. McGuire, 2004. "Bank ties and bond market access: evidence on investment-cash flow sensitivity in Japan," BIS Working Papers 151, Bank for International Settlements.
- G3 - Financial Economics - - Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-27 (All new papers)
- NEP-CFN-2003-04-27 (Corporate Finance)
- NEP-FIN-2003-04-27 (Finance)
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