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The Impacts Of “Shock Therapy” Under A Banking Crisis: Experiences From Three Large Bank Failures In Japan

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  • SHIN‐ICHI FUKUDA
  • SATOSHI KOIBUCHI

Abstract

A bank failure can have various adverse consequences for clients; these adverse impacts differ depending on which bank takes over the failed banks’ operations. In this paper, we show how the new banks’ management strategies are important in mitigating the short‐ and long‐run consequences. We focus on the clients of three large failed Japanese banks and examine their responses in terms of increased bankruptcies and changes in market valuation after the banks’ operations were taken over. The results imply that the choice of “shock therapy” or “soft budget constraints” had dramatically different consequences in resolving the bad loan problems in Japan.

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  • Shin‐Ichi Fukuda & Satoshi Koibuchi, 2006. "The Impacts Of “Shock Therapy” Under A Banking Crisis: Experiences From Three Large Bank Failures In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 232-256, June.
    • Handle: RePEc:bla:jecrev:v:57:y:2006:i:2:p:232-256
    DOI: 10.1111/j.1468-5876.2006.00375.x
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    Cited by:

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    2. Masami Imai & Michiru Sawada, 2022. "Does a Financial Crisis Impair Corporate Innovation?," Wesleyan Economics Working Papers 2022-002, Wesleyan University, Department of Economics.
    3. Shin-ichi Fukuda & Munehisa Kasuya & Kentaro Akashi, 2007. "The Role of Trade Credit for Small Firms: An Implication from Japan's Banking Crisis," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 3(1), pages 27-50, December.
    4. Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress," CIRJE F-Series CIRJE-F-364, CIRJE, Faculty of Economics, University of Tokyo.
    5. Kazuhiko Kobori, 2020. "Effects of Corporate Profitability and Growth on the Shareholding Strategies of Banks: Evidence from Japan," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(9), pages 1-83, September.
    6. Shin-ichi Fukuda & Munehisa Kasuya & Kentaro Akashi, 2007. "The Role of Trade Credit for Small Firms : An Implication from Japan’s Banking Crisis," Finance Working Papers 22596, East Asian Bureau of Economic Research.
    7. Fukuda, Shin-ichi & Kasuya, Munehisa & Nakajima, Jouchi, 2018. "The role of corporate governance in Japanese unlisted companies," Japan and the World Economy, Elsevier, vol. 47(C), pages 27-39.
    8. Fukuda, Shin-ichi & Koibuchi, Satoshi, 2007. "The impacts of "shock therapy" on large and small clients: Experiences from two large bank failures in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 434-451, November.
    9. Kenn Ariga & Fumio Hayashi & Charles Horioka, 2006. "Introduction," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 157-160, June.
    10. Shin-ichi Fukuda & Satoshi Koibuchi, 2006. "The Impacts of "Shock Therapy" on Large and Small Clients:Experiences from Two Large Bank Failures in Japan (Forthcoming in "Pacific-Basin Finance Journal". )," CARF F-Series CARF-F-077, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    11. Tetsuji Okazaki & Toshihiro Okubo & Eric Strobl, 2024. "The Bright and Dark Sides of a Central Bank's Financial Support to Local Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1439-1477, September.
    12. Tetsuji Okazaki & Toshihiro Okubo & Eric Strobl, 2020. "The Bright and Dark Side of Financial Support from Local and Central Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan," Keio-IES Discussion Paper Series 2020-001, Institute for Economics Studies, Keio University.
    13. Naoaki Minamihashi, 2011. "Credit Crunch Caused by Bank Failures and Self‐Selection Behavior in Lending Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 133-161, February.
    14. Shin-ichi Fukuda & Munehisa Kasuya & Jouchi Nakajima, 2005. "Deteriorating Bank Health and Lending in Japan: Evidence from Unlisted Companies Undergoing Financial Distress (Subsequently published in "Journal of the Asia Pacific Economy" Vo.11, No.4, D," CARF F-Series CARF-F-042, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    15. Shin-ichi Fukuda & Mariko Tanaka, 2013. "Financial Crises and Risk Premiums in International Interbank Markets," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 117-138, January.

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