Bank ties and bond market access: evidence on investment-cash flow sensitivity in Japan
The banking literature has established that banks can alleviate information asymmetries between lenders and borrowers, while the Q literature has used cash flow sensitivity analysis to test whether financing constraints hinder investment. Building on the results in Hoshi, Kashyap and Scharfstein (1991) and Hayashi (2000), this paper investigates whether bank ties in Japan were costly for mature and healthy firms in the 1980s and 1990s and whether banks continued to facilitate investment once non-bank financing options became available. Using the explicit bond issuing criteria to solve the endogenous firm sorting problem, I measure the investment-cash flow sensitivity of Japanese firms, and find it lowest for those firms known to have faced bond market constraints. I then find that the spread in sensitivity was much larger for main bank client firms, once bond market access is controlled for. This result, coupled with results on the relative profitability and bond activity of bank-affiliated firms, is consistent with banks capturing the net benefits of relationship lending during the period of bond market deregulation.
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- Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989.
"Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships,"
NBER Working Papers
3079, National Bureau of Economic Research, Inc.
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"Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(1), pages 33-60, February.
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- Yoshiro Miwa & J. Mark Ramseyer, 2001.
"The Fable of the Keiretsu,"
CIRJE-F-109, CIRJE, Faculty of Economics, University of Tokyo.
- Miwa, Yoshiro & Ramseyer, J. Mark, 2006. "The Fable of the Keiretsu," University of Chicago Press Economics Books, University of Chicago Press, edition 0, number 9780226532707, November.
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- Toshitaka Sekine, 1999. "Firm Investment and Balance-Sheet Problems in Japan," IMF Working Papers 99/111, International Monetary Fund.
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