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Directed Credit? Capital Market Competition in High-Growth Japan

  • Yoshiro Miwa

    (Faculty of Economics, University of Tokyo)

  • J. Mark Ramseyer

    (Harvard Law School)

Observers routinely claim that the Japanese government during the high-growth 1960s and 70s rationed and ultimately directed credit. It banned investments by foreigners, barred domestic competitors to banks, and capped loan interest rates. Through the resulting credit shortage, it manipulated credit to promote its industrial policy. In fact, the government did nothing of the sort. It did not bar foreign capital, did not block domestic rivals, and did not set maximum interest rates that bound. Using evidence on loans to all 1000-odd firms listed on Section 1 of the Tokyo Stock Exchange from 1968 to 1982, we show that the observed interest rates reflected borrower risk and mortgageable assets, and that banks did not use low-interest deposits to circumvent any interest caps. Instead, the loan market probably cleared at the nominal rates. We follow our empirical inquiry with a case study of one of the industies where the government tried hardest to direct credit: ocean shipping. We find no evidence of credit rationing. Rather, we show that non-conformist firms funded their projects readily outside authorized avenues -- so readily that the non-conformists grew with spectacular speed and earned their investors enormous returns.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2001/2001cf132.pdf
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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-132.

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Length: 36 pages
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:tky:fseres:2001cf132
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  1. Milgrom, Paul & Roberts, John, 1994. "Complementarities and systems: Understanding japanese economic organization," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(1), pages 3-42.
  2. Flath, David, 2014. "The Japanese Economy," OUP Catalogue, Oxford University Press, edition 3, number 9780198702405.
  3. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "The Role of Banks in Reducing the Costs of Financial Distress in Japan," NBER Working Papers 3435, National Bureau of Economic Research, Inc.
  4. Randall Morck & Masao Nakamura, 1999. "Banks and Corporate Control in Japan," Journal of Finance, American Finance Association, vol. 54(1), pages 319-339, 02.
  5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series 82, Board of Governors of the Federal Reserve System (U.S.).
  6. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, 04.
  7. Yoshiro Miwa & J. Mark Ramseyer, 2001. "The Fable of the Keiretsu," CIRJE F-Series CIRJE-F-109, CIRJE, Faculty of Economics, University of Tokyo.
  8. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
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