## Firm Investment and Balance-Sheet Problems in Japan

_IMF Working Papers, August 1, 1999_

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## Bibliographic details
- Authors: Toshitaka Sekine
- Published: August 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451853452.001

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### Summary
- Investigation period: 1985-95.
- Data: dynamic corporate panel data in Japan.
- Core question: whether balance-sheet conditions of firms and their main banks matter for firm investment behavior.
- Key conclusion: evidence supports the existence of liquidity constraints and a credit crunch affecting small Japanese firms during this period.

### Main findings
- Smaller non-bond issuing firms were facing liquidity constraints.
- These smaller 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.
- The deterioration of these firms’ 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.
- The results support the case of a credit crunch facing small Japanese firms during this period.

### Policy implications and interpretation
- The credit channel of monetary policy can have significant macroeconomic effects through bank–firm balance-sheet interactions.
- Deterioration in bank balance sheets can transmit to reduced lending and thereby constrain firm-level investment, particularly for smaller non-bond issuing firms.
- Monitoring and addressing bank balance-sheet health is important to prevent or mitigate credit constraints on vulnerable firms.

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## Content in this bundle

- **Firm Investement and Balance-Sheet Problems in Japan - WP/99/111**
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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/firm-investment-and-balance-sheet-problems-in-japan-3251_