Firm Investment and Balance-Sheet Problems in Japan

August 1, 1999

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Toshitaka Sekine. Firm Investment and Balance-Sheet Problems in Japan, (USA: International Monetary Fund, 1999) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Bank credit, Banking, Bonds, Capital adequacy requirements, Credit, Financial institutions, Financial regulation and supervision, Money, Nonperforming loans

Keywords: Balance-sheet condition, Balance-sheet variable, Bank credit, Bonds, Capital adequacy requirements, Credit, Credit channel, Dynamic panel data, Firm, Investment, Investment behavior, Issuing firm, Japan, Nonperforming loans, Over-the-counter market firm, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/111
Stock No:

WPIEA1111999
ISBN:

9781451853452
ISSN:

1018-5941

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