Firm Investment and Balance-Sheet Problems in Japan

Author: Mr. Toshitaka Sekine

This paper investigates whether balance-sheet conditions of firms and their main banks matter for firm investment behavior using dynamic corporate panel data in Japan for the period 1985-95. It finds that smaller non-bond issuing firms were facing liquidity constraints; these firms' balance-sheet conditions (the debt asset ratios) affected their investment from the midst of the bubble era by influencing main banks' lending to them; and the deterioration of their main banks' balance-sheet conditions constrained these firms' investment from about 1993. These findings highlight the potential macroeconomic impact and importance of the credit channel of monetary policy, and support the case of a credit crunch facing small Japanese firms during this period.

Volume/Issue: Volume 1999 Issue 111

Publication date: August 1999

ISBN: 9781451853452

$20.00

Add to Cart by clicking price of the language and format you'd like to purchase

Available Languages and Formats

	Paperback	PDF	ePub	Mobi
English

Prices in red indicate formats that are not yet available but are forthcoming.

Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Business and Economics , Banks and Banking , Money and Monetary Policy , WP , firm , balance-sheet condition , investment behavior , investment , credit channel , dynamic panel data , Japan , issuing firm , balance-sheet variable , over-the-counter market firm , Bonds , Nonperforming loans , Credit , Capital adequacy requirements , Bank credit

Also of interest

WORKING PAPERS PUBLISHED IN DECEMBER 2003

WORKING PAPERS PUBLISHED IN FEBRUARY 2004

WORKING PAPERS PUBLISHED IN JULY 2004

Summary

This paper investigates whether balance-sheet conditions of firms and their main banks matter for firm investment behavior using dynamic corporate panel data in Japan for the period 1985-95. It finds that smaller non-bond issuing firms were facing liquidity constraints; these firms’ balance-sheet conditions (the debt asset ratios) affected their investment from the midst of the bubble era by influencing main banks’ lending to them; and the deterioration of their main banks’ balance-sheet conditions constrained these firms’ investment from about 1993. These findings highlight the potential macroeconomic impact and importance of the credit channel of monetary policy, and support the case of a credit crunch facing small Japanese firms during this period.