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Do bank shocks affect physical or R&D investments more? Evidence from Japan

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  • Mizobata, Hirokazu

Abstract

This study focuses on physical and R&D investments to examine the effect of bank shocks on corporate investment behavior at the firm and economy levels. I use matched bank-firm lending data for listed Japanese companies from 1990 to 2013 to distinguish bank loan supply shocks from firms’ borrowing shocks. Notably, bank concentration increased in Japan during this period, thereby enhancing the granularity of bank shocks. The estimation result of each investment function reveals that bank shocks become highly relevant for firms’ physical investment relative to their R&D investment. Specifically, a negative bank shock of one standard deviation decreases the physical (R&D) investment rate by 12.6% (less than 1%) for firms with the median level of debt ratio. Consistent with this, the economy-level analysis shows that granular bank shocks account for 9.4% of the variation in Japan’s aggregate physical investment but have no explanatory power for the country’s aggregate R&D investment.

Suggested Citation

  • Mizobata, Hirokazu, 2023. "Do bank shocks affect physical or R&D investments more? Evidence from Japan," Journal of Corporate Finance, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:corfin:v:82:y:2023:i:c:s0929119923001219
    DOI: 10.1016/j.jcorpfin.2023.102472
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    References listed on IDEAS

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    1. Jie Gan, 2007. "The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1941-1973, November.
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    3. Federico Cingano & Francesco Manaresi & Enrico Sette, 2016. "Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2737-2773.
    4. Nakashima, Kiyotaka & Takahashi, Koji, 2018. "The real effects of bank-driven termination of relationships: Evidence from loan-level matched data," Journal of Financial Stability, Elsevier, vol. 39(C), pages 46-65.
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    More about this item

    Keywords

    Bank concentration; Granular bank shocks; Physical investment; R&D investment; Errors-in-variables;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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