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Bank risk-taking and a firm's default risk

Author

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  • Adachi-Sato, Meg
  • Vithessonthi, Chaiporn

Abstract

In this paper, we explore the relation between the banking sector's risk-taking (hereafter “bank risk-taking”) and a firm's investment and default risk. We develop a simple one-period model with multiple firms and banks that analyzes a firm's investment subject to a bank's lending decision (risk-taking). We theoretically examine the effect of a change in the bank's risk-taking on a firm's investment and default risk. We empirically test whether an increase in bank risk-taking is positively associated with a firm's investment and default risk using a sample of publicly listed firms in Japan during 2000-2020 (2106 firms and 31,926 firm-year observations). Our results indicate that after controlling for the level of bank risk-taking, the change in bank risk-taking is positively associated with a firm's investment and default risk.

Suggested Citation

  • Adachi-Sato, Meg & Vithessonthi, Chaiporn, 2026. "Bank risk-taking and a firm's default risk," International Review of Economics & Finance, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:reveco:v:109:y:2026:i:c:s1059056026005204
    DOI: 10.1016/j.iref.2026.105407
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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