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More evidence on the link between bank health and investment in Japan

  • Michael S. Gibson
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    Among stock-market-listed Japanese firms in 1994-95, the financial health of the firm's main bank did not significantly affect its investment behavior, after controlling for stock market valuation and cash flow. However, among the subset of bank-dependent firms, investment was lower by over 50 percent at firms that have one of the lowest-rated banks as their main bank. Because low-rated banks are smaller and deal with fewer firms, and because bank-dependent firms themselves tend to be smaller than non-bank-dependent firms, the aggregate effect on business investment in 1994-95 that I identify is tiny. These results contrast with Gibson (1995), a similar study which, using data for 1991-92, found a small effect of poor bank health on investment for all stock-market-listed Japanese firms and no difference between bank-dependent and non-bank-dependent firms.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/549/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/1996/549/ifdp549.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 549.

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    Date of creation: 1996
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    Handle: RePEc:fip:fedgif:549
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    1. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
    2. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
    3. Frank R. Lichtenberg & George. M Pushner, 1992. "Ownership Structure and Corporate Performance in Japan," NBER Working Papers 4092, National Bureau of Economic Research, Inc.
    4. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
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