Firm Investment and Balance-Sheet Problems in Japan

Author/Editor:

Toshitaka Sekine

Publication Date:

August 1, 1999

Electronic Access:

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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.

Series:

Working Paper No. 1999/111

Subject:

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

English

Publication Date:

August 1, 1999

ISBN/ISSN:

9781451853452/1018-5941

Stock No:

WPIEA1111999

Pages:

32

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