Firms' Interest Payment Burden and Productivity under a Low Interest Rate Environment

For a long period, a low interest rate environment has continued on in Japan. While this environment puts upward pressure on the real economy through a decline in real interest rates, it also hinders the business dynamics of firms and induces inefficient resource allocation. Taking this into account, in this paper, we first try to extract a group of firms that continue to survive with support from banks or other entities despite performing poorly and having no prospect of recovery. We refer to these firms as "financially-supported firms." We find that the share of financially-supported firms in Japan has remained at a low level in recent years. The productivity of financially-supported firms is lower than that of other firms and despite their limited number, they put downward pressure on aggregate productivity. We then analyze the spillover effects of financially-supported firms on the macroeconomy, i.e., through distortion in resource allocation. The analysis of large firms in recent years does not suggest that the presence of financially-supported firms has suppressed the productivity of other firms. Next, we conduct an empirical analysis on the relationship between a low interest rate environment and financially-supported firms. No direct relationship is confirmed between the two, partly due to the fact that the emergence of financially-supported firms was prevented under a stable financial system. However, in recent years, while the share of firms facing a significant deterioration in business conditions, such as financially-supported firms, has been at a low level after having declined from the mid-1990s through the mid-2000s, the share of firms remaining at relatively low productivity has been flat; this suggests the possibility that the low interest rate environment might be one of the attributable factors.