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The Effectiveness of Public Credit Guarantees in the Japanese Loan Market

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

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

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  1. William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
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  17. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
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  19. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
  20. Wenli Li, 1998. "Government loan, guarantee, and grant programs: an evaluation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 25-52.
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