Contributions of Bank Loans and Capital Market to Recovery from the Showa Depression(in Japanese)

Many banks went bankrupt during the "Showa financial crisis" and the "Showa depression." Many have argued that the bankruptcies were an important factor in the worsening of the depression. Even during that grim time, however, finance from capital markets increased and, especially, issuance of corporate bonds markedly increased. That is, after the end of the Showa depression, the means of procurements of the private sector changed from an indirect financial system where banks act as key players, to a direct financial system where capital markets are paramount. It is generally assumed that bank loans affect production because banks have specific information on the management of firms, to whom the banks give loans, and the loans are substitutable by neither equities nor corporate bonds. During the Showa depression, however, firms grew by procuring finance by equities or corporate bonds rather than bank loans. It suggests that the proposition that bank loans and other methods of finance are not substitutable is wrong. This paper analyzes the relation between growth of fixed assets and means of procurement of finances by using large-cap company data, by industry. The results show that the correlation between the growth of fixed assets and increase of bank loans is weak, but the correlation between the growth of fixed assets and increases in equity or corporate bonds are strong. That is, the recovery and growth of firms during the Showa depression are supported by capital markets, not by banks.