"Perverse Incentives of Loan Supply and the Violation of Absolute Priority Rule in Japan--Credit Crunch and Excessive Additional Loan--"(in Japanese)

As for recent Japanese bank behavior, there exist two inefficacies. One is credit crunch, that is, banks hesitate to lend money to new good projects. The other is excessive additional loan to bad-performing firms. These two perverse bank behaviors look like contradictive each other. In this paper, we explain these contradictive behaviors stem from the violation of the absolute priority rule (APR) among the stakeholders in Japan. Under the legal violation of priority rule, the borrowers with inefficient projects can finance from a new junior creditor, transferring the credit value of the senior creditor to the new junior one. In such a situation, it is the best behavior for the senior creditor, i.e. bank, which tries to protect the value of his senior credit, to finance the inefficient project by himself before the junior creditor might lend money. This behavior implies inefficient excessive additional loan. Furthermore, since banks expect not to avoid such ex-post inefficiency and the accompanied loss due to the violation of APR, they are unwilling to lend to the originally efficient project in ex-ante. This results in credit crunch.

Perverse Incentives of Loan Supply and the Violation of Absolute Priority Rule in Japan : Credit Crunch and Excessive Additional Loan

As for recent Japanese bank behavior, there exist two inefficacies. One is credit crunch, that is, banks hesitate to lend money to new good projects. The other is excessive additional loan to bad-performing firms. These two perverse bank behaviors look like contradictive each other. In this paper, we explain these contradictive behaviors stem from the violation of the absolute priority rule (APR) among the stakeholders in Japan. Under the legal violation of priority rule, the borrowers with inefficient projects can finance from a new junior creditor, transferring the credit value of the senior creditor to the new junior one. In such a situation, it is the best behavior for the senior creditor, i.e. bank, which tries to protect the value of his senior credit, to finance the inefficient project by himself before the junior creditor might lend money. This behavior implies inefficient excessive additional loan. Furthermore, since banks expect not to avoid such ex-post inefficiency and the accompanied loss due to the violation of APR, they are unwilling to lend to the originally efficient project in ex-ante. This results in credit crunch.本文フィルはリンク先を参照のこ

An Empirical Analysis about the Effects of Absolute Priority Rule Violation on Japanese Bank's Lending Behavior

1990年代後半以降，日本の貸出市場では，貸し渋りと追い貸しという二つの非効率性の問題が議論されてきた．瀬下・山崎(2004)は，債権者間で優先権が侵害される規定が日本の民法や倒産法に存在しており，このような優先権侵害があると，一見相反するように見える「追い貸し」と「貸し渋り」という銀行行動についての二つの仮説を整合的に説明できることを理論的に示している．　本稿では，銀行の貸出関数を推計し，この優先権侵害に基づく仮説とその対立仮説であるデット・オーバーハングに基づく貸し渋りの議論とを比較検証する．貸出関数におけるキャッシュ・フローの係数の符号に着目して，仮説を検証した結果，優先権侵害に基づく仮説と整合的な結果が得られた．これに対して，デット・オーバーハングに基づく説明を支持するような十分な結果は得られなかった．There are still controversial arguments between the credit crunch (underinvestment) and evergreening investment (overinvestment) in Japan. Seshimo and Yamazaki (2004) shows that these hypotheses are not contradictory one another, taking into account the violations of the absolute priority rule (APR) in Japan. In this paper, we estimate loan supply functions of Japanese banks and statistically test the APR violation hypothesis and alternative debt over-hang hypothesis. Focusing on the signs of coefficients about the cash flow in loan supply functions, we obtain the consistent results with the APR-violation hypothesis, but not with the debt over-hang hypothesis