Firm Investment and Balance-Sheet Problems in Japan
August 1, 1999
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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
Pages:
32
Volume:
1999
DOI:
Issue:
111
Series:
Working Paper No. 1999/111
Stock No:
WPIEA1111999
ISBN:
9781451853452
ISSN:
1018-5941
