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The Effectiveness of Public Credit Guarantees in the Japanese Loan Market

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Listed author(s):
  • 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.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 24 (2010)
Issue (Month): 4 (December)
Pages: 457-480

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Handle: RePEc:eee:jjieco:v:24:y:2010:i:4:p:457-480
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

Keywords: Credit crunch Loan guarantees Matching estimation Small and medium enterprises;

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Find related papers by 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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  1. Cowling, Marc, 2010. "The role of loan guarantee schemes in alleviating credit rationing in the UK," Journal of Financial Stability, Elsevier, vol. 6(1), pages 36-44, April.
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  12. Gale, William G., 1990. "Federal lending and the market for credit," Journal of Public Economics, Elsevier, vol. 42(2), pages 177-193, July.
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Cited by:

  1. Ono, Arito & Uesugi, Iichiro & Yasuda, Yukihiro, 2013. "Are lending relationships beneficial or harmful for public credit guarantees? Evidence from Japan's Emergency Credit Guarantee Program," Journal of Financial Stability, Elsevier, vol. 9(2), pages 151-167.
  2. Cowan, Kevin & Drexler, Alejandro & Yañez, Álvaro, 2015. "The effect of credit guarantees on credit availability and delinquency rates," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 98-110.
  3. International Monetary Fund, 2012. "Japan; Selected Issues," IMF Staff Country Reports 12/209, International Monetary Fund.
  4. SAITO Kuniyoshi & TSURUTA Daisuke, 2014. "Information Asymmetry in SME Credit Guarantee Schemes: Evidence from Japan," Discussion papers 14042, Research Institute of Economy, Trade and Industry (RIETI).
  5. Waikei R Lam & Jongsoon Shin, 2012. "What Role Can Financial Policies Play in Revitalizing SMEs in Japan?," IMF Working Papers 12/291, International Monetary Fund.
  6. Ono, Arito & Sakai, Koji & Uesugi, Iichiro, 2012. "The effects of collateral on firm performance," Journal of the Japanese and International Economies, Elsevier, vol. 26(1), pages 84-109.
  7. Heshmati, Almas, 2013. "The Effect of Credit Guarantees on R&D Investment of SMEs in Korea," IZA Discussion Papers 7851, Institute for the Study of Labor (IZA).
  8. Marusca De Castris & Guido Pellegrini, 2015. "Italian Public Guarantees To Sme: The Impact On Regional Growth," Working Papers 0615, CREI Università degli Studi Roma Tre, revised 2015.
  9. Tsuruta, Daisuke, 2015. "Bank loan availability and trade credit for small businesses during the financial crisis," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 40-52.
  10. Hyonok KIM & YASUDA Yukihiro, 2015. "Accounting Information Quality and Government Guaranteed Loans: Evidence from Japanese SMEs," Discussion papers 15138, Research Institute of Economy, Trade and Industry (RIETI).

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