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Banks, credit supply, and the life cycle of firms: Evidence from late nineteenth century Japan

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  • Tang, John P.
  • Basco, Sergi

Abstract

How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. We find that the lifespan of firms decreases with bank capital and that capital-abundant regions have more firm creation and destruction. These effects are amplified for manufacturing, while service sector firms experience no change in longevity and have less creation. Our results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more capital-intensive investment and economic dynamism.

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  • Tang, John P. & Basco, Sergi, 2023. "Banks, credit supply, and the life cycle of firms: Evidence from late nineteenth century Japan," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001425
    DOI: 10.1016/j.jbankfin.2023.106937
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    More about this item

    Keywords

    Credit supply; Banks; Liquidity constraints; Firm dynamics; Entrepreneurship;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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