Financial Distress and Corporate Investment: The Japanese Case in the 90s

We examine quantitatively the extent to which financial distress in the 90s affected Japanese corporate investment. Based on the firm-level data that includes small, unlisted firms, we estimate investment function to measure the impact of financial distress on investment. We find that the firm's ratio of debt to total asset exerts a significantly negative effect on investment of small firms. We also find that lending attitude of financial institutions did affect investment behavior irrespective of firm size. The impact of lending attitude on investment is notably large for 1998 labeled "credit crunch."

Why Commercial Banks Held Excess Reserves: The Japanese Experience of the Late '90s

We investigated, empirically, why Japanese banks held excess reserves in the late 1990s. Specifically, we pin down two factors explaining the demand for excess reserves: a low short-term interest rate, or call rate, and the fragile financial health of banks. The virtually zero call rate increased the demand for excess reserves substantially, and a high bad loans ratio largely contributed to the increase in excess reserve holdings. We found that the holdings of excess reserves would fall by half if the call rate were to be raised to its level prior to the adoption of the zero-interest-rate policy, and the bad loans ratio were to fall by 50%.

Financial Distress and Employment: The Japanese Case in the 90s

We examine quantitatively the extent to which financial distress in the 1990s affected employment behavior in Japan. Based on the firm-level panel data that include small firms, we estimate dynamic labor demand function, taking the impact of financial distress on employment into consideration. We find that the firm's ratio of debt to total asset exerts a significantly negative effect on employment of small firms. We also find that employment of small firms is sensitively affected by lending attitude of financial institutions.

Debt, R&D Investment and Technological Progress: A Panel Study of Japanese Manufacturing Firms in the 90s

Based on a panel data set of Japanese manufacturing firms in research-intensive industries, we investigate quantitatively the extent to which debt outstandings in the 90s affected the firm's R&D activities. We find that massive debt outstandings had significantly negative effect on R&D investment in the 90s. We also find that investment on R&D was closely linked to the firm-level total factor productivity growth in the 90s. In fact, ten-percentage-point increase of debt-asset ratio lowered the firm-level total factor productivity growth rate by 0.72 percentage point for 1999-2001 by way of withering R&D activities, while the firm-level TFP growth rate remains almost intact for 1988-91.

Does Agency Cost Model Explain Business Fluctuations in Japan?: An Empirical Attempt to Estimate Agency Cost by Firm Size

An attempt is made to estimate a state space model of investment and borrowing in a Bayesian framework and extract the unobservable agency cost of Japanese firms by firm size. Our estimates of the agency cost exhibited a declining trend in the late 80s and then switched to an increasing trend in the 90s. We pin down the driving force of agency cost to be the market value of land. Furthermore, we find that investment and borrowing behavior of small firms is very much affected by their agency cost in the late 80s and the 90s. Our evidence demonstrates that imperfection of capital market is notable for small firms in Japan.

Information, Investment, and the Stock Market: A Study of Investment Revision Data of Japanese Manufacturing Industries,

We examined investment behavior in the Japanese manufacturing industry using investment revision data to analyze investment behavior from a fresh angle. We tested the martingale investment hypothesis and then the q-theory of investment by looking at the response of stock return and investment to news arriving at firms. The martingale hypothesis was generally accepted, and we also found evidence for the validity of the q-theory hypothesis. Investment was responsive to profit rate revision and sales revision, but stock return responded only to profit rate revision. Further investigation revealed that investment was also motivated by expansion of market share for sales, especially for industries with rapid technological progress.

Bank Control and the Number of Bank Relations of Japanese Firms

We explore the determinants of the number of long-term bank relations of listed Japanese firms using a unique data set covering the period 1982-1999. Japanese listed firms have about seven long-term bank loan relations on average, but show a large variation around the average. We analyze the determinants of the choice for the number of bank relations. We use data on loan and equity ownership to address the impact of the Japan-specific bank-firm relations and bank control on the number of loans decision. Having a relation with a top-equity holding bank reduces the number of bank relations, while debt-rich and cash-poor firms have more bank relations.firm-bank relations, single versus multiple borrowing, bank control, discrete choice models