Bank Dependence and Financial Constraints on Investment: Evidence from the corporate bond market paralysis in Japan
This paper investigates the causal relationship between firms' bank dependence and financial constraints by utilizing the 2008 financial crisis and its impact on the Japanese economy as a natural experiment. Since the Japanese banking sector remained healthy while the corporate bond markets were paralyzed, firms that had reduced bank dependence were hit heavily by the shock. I examined whether firms with large holdings of corporate bonds maturing in 2008 were financially constrained, by comparing the changes in their investment expenditures and borrowing conditions with those of bank-dependent firms. The main empirical results show that (1) firms with large holdings of corporate bonds maturing in 2008 did not cut investment expenditures; (2) instead, they observed higher increments in bank loans; and (3) firms that maintained relatively close bank-firm relationships had more access to bank loans with low borrowing costs, but significant differences in investment expenditures were not found. These findings imply that although there is a cost to reducing bank dependence, it is not very high for Japanese listed firms.
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- Sudheer Chava & Amiyatosh Purnanandam, 2006.
"The effect of a banking crisis on bank-dependent borrowers,"
1030, Federal Reserve Bank of Chicago.
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- repec:cup:cbooks:9780521845731 is not listed on IDEAS
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- Heitor Almeida & Murillo Campello & Bruno Laranjeira & Scott Weisbenner, 2009. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," NBER Working Papers 14990, National Bureau of Economic Research, Inc.
- R. Glenn Hubbard, 1990. "Asymmetric Information, Corporate Finance, and Investment," NBER Books, National Bureau of Economic Research, Inc, number glen90-1, August.
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