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Bank Health and Investment: An Analysis of Unlisted Companies in Japan


  • Shin-ichi Fukuda

    (Faculty of Economics, University of Tokyo)

  • Munehisa Kasuya

    (Research and Statistics Department, The Bank of Japan)

  • Jouchi Nakajima

    (Graduate School of Economics, University of Tokyo)


To the extent that a borrower faces switching costs in a relationship with an individual bank, bank-specific financial health might affect a borrower's cost of funds. The costs would be particularly large for firms that have a close relationship with limited number of banks. The purpose of this paper is to investigate whether weakened financial conditions of banks reduced investment of small and medium firms in Japan. Estimating Tobin's Q investment functions, we examine the determinants of investment for unlisted Japanese companies in the late 1990s and the early 2000s. We find that several measures on bank-specific financial health have significantly large impacts on borrower's investment, even when observable characteristics relating to Tobin's Q, cash-flow, and leverage are controlled for. We also find that multiple banking relationships, which tend to have a negative impact on investment in general, may be beneficial in relieving a hold up problem when deteriorated bank health does matter.

Suggested Citation

  • Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Bank Health and Investment: An Analysis of Unlisted Companies in Japan," CARF F-Series CARF-F-029, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  • Handle: RePEc:cfi:fseres:cf029

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    References listed on IDEAS

    1. Leland, Hayne E, 1994. " Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-1252, September.
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    Cited by:

    1. De Veirman, Emmanuel & Levin, Andrew T., 2012. "When did firms become more different? Time-varying firm-specific volatility in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(4), pages 578-601.
    2. Fukuda, Shin-ichi & Kasuya, Munehisa & Akashi, Kentaro, 2009. "Impaired bank health and default risk," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 145-162, April.
    3. Imai, Kentaro, 2016. "A panel study of zombie SMEs in Japan: Identification, borrowing and investment behavior," Journal of the Japanese and International Economies, Elsevier, vol. 39(C), pages 91-107.
    4. Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress (Subsequently published in "Journal of the Asia Pacific Economy" Vo.11, No.4, D," CARF F-Series CARF-F-042, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    5. Akiyoshi, Fumio & Kobayashi, Keiichiro, 2010. "Banking crisis and productivity of borrowing firms: Evidence from Japan," Japan and the World Economy, Elsevier, vol. 22(3), pages 141-150, August.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • 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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