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The Effectiveness of Public Credit Guarantees in the Japanese Loan Market

Author

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  • Uesugi, Iichiro
  • Sakai, Koji
  • Yamashiro, Guy M.

Abstract

This paper examines the effectiveness of public credit guarantee programs in not only increasing the availability of loans to small and medium enterprises (SMEs), but in also improving the ex-post performance of borrowing firms. Using a unique panel data set, we identify the effects of a massive credit guarantee program implemented by the Japanese government from 1998 to 2001. While we do find that the availability of loans increased for program participants, when loans were provided by undercapitalized banks the increased liquidity persisted for only a few years. Further, the ex-post performance of program participants, with the exception of firms with sizable net worth, deteriorated relative to their non-participating counterparts.

Suggested Citation

  • Uesugi, Iichiro & Sakai, Koji & Yamashiro, Guy M., 2010. "The Effectiveness of Public Credit Guarantees in the Japanese Loan Market," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 457-480, December.
  • Handle: RePEc:eee:jjieco:v:24:y:2010:i:4:p:457-480
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    More about this item

    Keywords

    Credit crunch Loan guarantees Matching estimation Small and medium enterprises;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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