Financial Crisis, Firm Dynamics and Aggregate Productivity in Japan

Using a dynamic general equilibrium model of firm dynamics that incorporates financial intermediation costs, we quantify the degree to which the deterioration in the health of banks during the Japanese banking crisis had an impact on aggregate productivity through firm dynamics. We find that the deterioration of bank health accounts for about 20 percent to 30 percent of the actual decline in the de-trended TFP during the crisis period (1996-2002). Our results suggest that differential impacts of financial intermediation costs between more and less productive firms or between entrants and incumbents are essential to quantitatively assess the aggregate consequences of financial crises.

Human Capital, Migration, and Regional Income Convergence in the Philippines

We test the convergence of real income using the Philippine regional data over the period of 1980-2000. Differences in real income across regions were large and persistent. Though regional incomes did not converge towards a common level (absolute convergence), they did converge controlling for human capital measured by average schooling years (conditional convergence). Human capital and its accumulation contributed to economic growth. People with higher human capital were more likely to move across regions. In addition, people tended to move from poor to rich regions. The absence in the absolute convergence may be due to the fact that higher human capital tended to move from poor to rich regions.

Do Banks Have Private Information? Bank screening and ex-post small firm performance

This paper examines whether commercial banks screen loan applications based on private information on firms' future profitability, and consequently how banks' ex-ante private information and screening decisions affect firms' ex-post profitability. Using a dataset of banks' loan application screenings and the ex-post firm performance for Japanese SMEs, we obtained strong evidences suggesting that banks' ex-ante private information was related to firms' ex-post performance. We found this relationship to be especially strong for small, mature firms, which supports the relationship-lending hypothesis.

Market Discipline on Bank Management

This paper presents several theoretical hypotheses on market discipline to bank managers, reviews empirical evidences on these hypotheses and derives some policy implications from them. We stress potential benefits to developing and transition economies from utilizing market discipline and discuss how they can realize the benefits. Various institutional structures are found to be essential to enhance the effectiveness of market discipline: disclosure and transparency, credible and modest safety net schemes, development of security markets, liberalization of bank activities, privatization of banks, and stable macroeconomic policy. The government should establish liquidation regimes for banks and improve the quality of legal and judiciary systems to make its commitment to limit the scope of the safety net credible

Consolidation of Banks in Japan: Causes and Consequences

We investigate the motives and consequences of the consolidation of banks in Japan during the period of fiscal year 1990-2004 using a comprehensive dataset. Our analysis suggests that the government's too-big-to-fail policy played an important role in the mergers and acquisitions (M&As), though its attempt does not seem to have been successful. The efficiency-improving motive also seems to have driven the M&As conducted by major banks and regional banks in the post-crisis period, while the market-power motive seems to have driven the M&As conducted by regional banks and corporative (shinkin) banks. We obtain no evidence that supports managerial motives for empire building.

Mergers, Innovation, and Productivity: Evidence from Japanese manufacturing firms

We investigate the impact of merger on innovation and efficiency using a micro dataset of Japanese manufacturing firms including unlisted firms during the period of 1995-1999. We find that the acquirer's total factor productivity (TFP) decreases immediately after mergers and does not significantly recover to the pre-merger level within three years after mergers. We also find that the R&D intensity does not significantly change after mergers in spite of a significant increase in the debt-to-asset ratio. Our results suggest that the costs of business integration are large and persistent. To take into considering large integration costs, we also analyze the post-merger performance from one year after mergers, finding no significant increase in TFP or R&D intensity up to three years after mergers. Given the heterogeneity of mergers, we analyze the post-merger performance by classifying merger types. We find that the recovery of TFP after mergers is significant for mergers across industries or within the same business group, suggesting that a synergy effect works well and integration costs are small for those types of mergers.

International Transmission of the 2008 Crisis: Evidence from the Japanese stock market

We investigate the international transmission of the credit crisis triggered by the Lehman default in September 2008 using Japan's stock market data. Using cumulative returns (CR) during the crisis, starting from the day of Lehman's default and lasting until the day prior to the news of the TARP capital injection, we find that CR is negatively correlated with the export-to-sales ratio, the loan-to-asset ratio, and the share owned by foreign investors. Once controlling for market risk, however, cumulative abnormal returns (CAR) during the same period shows a different picture. CAR is not negatively correlated with export shares or the share owned by foreign investors, which implies that neither trade channels nor portfolio-rebalancing by foreigners are unique characteristics of the crisis, but can be observed in normal downturns. We find that CAR is negatively correlated with the loan-to-asset ratio, suggesting that market participants were worried about the credit crunch. We also find that CAR is negatively correlated with the shares of exports to North America and Asia after controlling for total exports, suggesting that the composition of export destination matters. Finally, we find that the concentration of export destination is also relevant.

Managerial Entrenchment and Anti-takeover Provisions in Japan

We analyze the characteristics of Japanese firms that introduced antitakeover provisions after the official guidelines for antitakeover provisions were released in 2005. Our main results are the following. First, firms' operating performance or stock market valuations were not related to the adoption of takeover defense measures. Second, firms' age and their ownership structure were correlated with the adoption of antitakeover provisions. Specifically, companies that were older, had lower proportions of shares held by their directors, or higher cross-shareholding ratios were more likely to adopt takeover defense measures, which suggests that the adoption of such measures is motivated by self-protection on the part of corporate managers and influenced by the conflicts of interest between managers and shareholders. In addition, as controlling shareholders had lower shares of stocks and institutional investors had higher shares of stocks, firms were more inclined to adopt takeover defense measures, suggesting that companies are likely to adopt such measures if their shares are liquid and easy to acquire.