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Effects of Main Bank Switch on Small Business Bankruptcy

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  • Yuta OGANE

Abstract

This paper examines the effects of main bank switching on the probability of small business bankruptcy by employing a propensity score matching estimation approach. We use a unique firm-level data set of more than 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan; the firms are young and unlisted SMEs just after incorporation. We find that main bank switching increases the probability of firm bankruptcy. In addition, the result suggests that switching increases the probability of bankruptcy when firms switch to financial institutions with which they have not previously transacted. This result may be because such switching worsens the financial conditions of client firms. We also find that the result holds only when the ex-post main banks are not descendants of their ex-ante main banks.

Suggested Citation

  • Yuta OGANE, 2017. "Effects of Main Bank Switch on Small Business Bankruptcy," Discussion papers 17019, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:17019
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