Effectiveness of Credit Guarantees in the Japanese Loan Market
From 1998-2001, the Japanese government, in an effort to stimulate the flow of funds to the small business sector, implemented a massive credit guarantee program that was unprecedented in both scale and scope. Because the program was accessible by nearly every small firm we are able to clearly identify the policy effect. The program, therefore, presents a unique opportunity to determine if government intervention can improve the efficiency of credit allocation among bank-dependent small businesses. Utilizing a new panel data set of Japanese firms, which covers the implementation period of the program, we empirically test the theoretical predictions of Mankiw's (1986) adverse selection model. The model of credit markets under asymmetric information allows us to investigate whether government credit programs do more to stimulate small business investment, or serve to worsen the adverse selection problems prevalent in credit markets. We find evidence consistent with the former hypothesis. Specifically, we find that (1) program participants significantly increase their leverage, especially their use of long-term loans, and (2) with the exception of high-risk firms, become more efficient.
|Date of creation:||Feb 2006|
|Contact details of provider:|| Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901|
Web page: http://www.rieti.go.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- William G. Gale, 1990.
"Collateral, Rationing, and Government Intervention in Credit Markets,"
in: Asymmetric Information, Corporate Finance, and Investment, pages 43-62
National Bureau of Economic Research, Inc.
- William G. Gale, 1989. "Collateral, Rationing and Government Intervention in Credit Markets," NBER Working Papers 3083, National Bureau of Economic Research, Inc.
- William G. Gale, 1989. "Collateral, Rationing, and Government Intervention in Credit Markets," UCLA Economics Working Papers 554, UCLA Department of Economics.
- William G. Gale, 1989. "Collateral, Rationing, and Government Intervention in Credit Markets," NBER Working Papers 3024, National Bureau of Economic Research, Inc.
- Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588.
- Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197.
- "Iwamoto, Yasushi", 2001. "Fiscal Investment and Loan Program―A Perspective on Government Interventions in the Japanese Financial Sector―," Economic Review, Hitotsubashi University, vol. 52(1), pages 2-15, January.
- Ben R. Craig & William E. Jackson & James B. Thomson, 2005. "SBA-loan guarantees and local economic growth," Working Paper 0503, Federal Reserve Bank of Cleveland.
- Williamson, Stephen D, 1994. "Do Informational Frictions Justify Federal Credit Programs?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 523-544, August.
- Stephen D. Williamson, 1994. "Do informational frictions justify federal credit programs?," Proceedings, Federal Reserve Bank of Cleveland, pages 523-551.
- Gale, William G, 1991. "Economic Effects of Federal Credit Programs," American Economic Review, American Economic Association, vol. 81(1), pages 133-152, March.
- William G. Gale, 1988. "Economic Effects of Federal Credit Programs," UCLA Economics Working Papers 483, UCLA Department of Economics.
- Cowling, Marc & Mitchell, Peter, 2003. "Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to Small Business?," Small Business Economics, Springer, vol. 21(1), pages 63-71, August.
- Bruce D. Smith & Michael J. Stutzer, 1989. "Credit Rationing and Government Loan Programs: A Welfare Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 177-193.
- Chaney, Paul K. & Thakor, Anjan V., 1985. "Incentive effects of benevolent intervention : The case of government loan guarantees," Journal of Public Economics, Elsevier, vol. 26(2), pages 169-189, March.
- Paul K. Chaney & Anjan V. Thakor, 2004. "Incentive Effects of Benevolent Intervention - The case of government loan guarantees," Finance 0411047, EconWPA.
- MATSUURA Katsumi & HORI Masahiro, 2003. "Special Credit Guarantee and Restructuring of Small Firms(in Japanese)," ESRI Discussion paper series 050, Economic and Social Research Institute (ESRI).
- Gale, William G., 1990. "Federal lending and the market for credit," Journal of Public Economics, Elsevier, vol. 42(2), pages 177-193, July.
- William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
- Wenli Li, 1998. "Government loan, guarantee, and grant programs: an evaluation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 25-52.
- N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 455-470.
- N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," NBER Working Papers 1786, National Bureau of Economic Research, Inc.
- Varouj Aivazian & Dipak Mazumdar & Eric Santor, 2003. "Financial Constraints and Investment: Assessing the Impact of a World Bank Loan Program on Small and Medium-Sized Enterprises in Sri Lanka," Staff Working Papers 03-37, Bank of Canada.
- Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December. Full references (including those not matched with items on IDEAS)