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Forbearance Lending: The Case of Japanese Firms

Author

Listed:
  • Sekine, Toshitaka

    (Bank of Japan)

  • Kobayashi, Keiichiro

    (Research Institute of Economy, Trade and Industry)

  • Saita, Yumi

    (Bank of Japan)

Abstract

After the collapse of the asset price bubble, Japanese banks are said to refinance firms, even in cases where there is little prospect of firms repaying the loans extended. This phenomenon is known as " forbearance lending." We find the evidence which is consistent with the view that forbearance lending certainly took place, and that it suppressed the profitability of inefficient nonmanufacturing firms. First, contrary to the usual expectation, we find that outstanding loans were apt to increase to a firm whose debt-asset ratio exceeded a certain level: after the bubble burst, this nonlinear relationship between loans and debt-asset ratios became evident for nonmanufacturing firms, especially those in the construction and real estate industries. Furthermore, we also find that an increase in loans to highly indebted firms in these industries lowered their profitability.

Suggested Citation

  • Sekine, Toshitaka & Kobayashi, Keiichiro & Saita, Yumi, 2003. "Forbearance Lending: The Case of Japanese Firms," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 69-92, August.
  • Handle: RePEc:ime:imemes:v:21:y:2003:i:2:p:69-92
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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