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The Effectiveness of Public Credit Guarantees in the Japanese Loan Market

  • Uesugi, Iichiro
  • Sakai, Koji
  • Yamashiro, Guy M.

This paper examines the effectiveness of public credit guarantee programs in not only increasing the availability of loans to small and medium enterprises (SMEs), but in also improving the ex-post performance of borrowing firms. Using a unique panel data set, we identify the effects of a massive credit guarantee program implemented by the Japanese government from 1998-2001. While we do find that the availability of loans increased for program participants, when loans were provided by undercapitalized banks the increased liquidity persisted for only a few years. Further, the ex-post performance of program participants, with the exception of firms with sizable net worth, deteriorated relative to their non-participating counterparts.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/16255/1/pie_dp400.pdf
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Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 400.

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Length: 39 p.
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:hit:piecis:400
Note: 3 September 2008, An earlier version of this paper circulated as "Effectiveness of Credit Guarantees in the Japanese Loan Market," 2006 RIETI Discussion Paper Series 06-E-04.
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  1. Barbara Sianesi, 2004. "An Evaluation of the Swedish System of Active Labor Market Programs in the 1990s," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 133-155, February.
  2. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2007. "On government intervention in the small-firm credit market and its effect on economic performance," Working Paper 0702, Federal Reserve Bank of Cleveland.
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  16. Cowling, Marc, 2007. "The Role of Loan Guarantee Schemes in Alleviating Credit Rationing in the UK," MPRA Paper 1613, University Library of Munich, Germany.
  17. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, June.
  18. 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.
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