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The objective function of government-controlled banks in a financial crisis

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  • Ogura, Yoshiaki

Abstract

We present evidence that government-controlled banks (GCBs) significantly increased their lending to small and medium-sized enterprises (SMEs) whose main bank was a large bank in the 2008–09 financial crisis. Further analyses show that the weak relationship between large banks and SMEs is a major cause for this phenomenon. The mixed Cournot oligopoly model with relationship banking, where profit-maximizing private banks and a welfare-maximizing GCB coexist, shows that this finding is consistent with the welfare maximization by a GCB rather than its own profit maximization.

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  • Ogura, Yoshiaki, 2018. "The objective function of government-controlled banks in a financial crisis," Journal of Banking & Finance, Elsevier, vol. 89(C), pages 78-93.
    • Handle: RePEc:eee:jbfina:v:89:y:2018:i:c:p:78-93
    DOI: 10.1016/j.jbankfin.2018.01.015
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    2. Sami Al-Kharusi & Azmat Gani, 2022. "Financial Credit and Expansion of the Non-Hydrocarbon Sector in Gulf Cooperation Council Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 28(3), pages 105-118, November.
    3. Ankur Shukla & N. Sivasankaran & Shilpee A Dasgupta, 2018. "Do Board Characteristics Impact the Market Performance of Indian Banks?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(11), pages 1365-1383, November.
    4. Haraguchi, Junichi & Matsumura, Toshihiro, 2020. "Lack of commitment to future privatization policies may lead to worst welfare outcome," Economic Modelling, Elsevier, vol. 88(C), pages 181-187.
    5. Ogura, Yoshiaki, 2020. "Intensified lending competition and search-for-yield under prolonged monetary easing," Journal of the Japanese and International Economies, Elsevier, vol. 56(C).
    6. Eriko Naiki & Yuta Ogane, 2020. "Bank soundness and bank lending to new firms during the global financial crisis," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 513-541, July.
    7. Balachandran, Balasingham & Williams, Barry, 2018. "Effective governance, financial markets, financial institutions & crises," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 1-15.
    8. Honda, Tomohito & Hosono, Kaoru & Miyakawa, Daisuke & Ono, Arito & Uesugi, Iichiro, 2023. "Determinants and effects of the use of COVID-19 business support programs in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    9. Yoshiaki Ogura, 2019. "Search-for-Yield under Prolonged Monetary Easing and Aging," Working Papers e142, Tokyo Center for Economic Research.
    10. Sato, Susumu & Matsumura, Toshihiro, 2019. "Shadow cost of public funds and privatization policies," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    11. Besstremyannaya, Galina, 2017. "Heterogeneous effect of the global financial crisis and the Great East Japan Earthquake on costs of Japanese banks," Journal of Empirical Finance, Elsevier, vol. 42(C), pages 66-89.
    12. Imai, Masami, 2020. "Government financial institutions and capital allocation efficiency in Japan," Journal of Banking & Finance, Elsevier, vol. 118(C).
    13. Masanori Orihara & Yoshiaki Ogura & Yue Cai, 2022. "Borrowing in Unsettled Times and Cash Holdings Afterwards," Working Papers 2207, Waseda University, Faculty of Political Science and Economics.
    14. Junichi Haraguchi & Toshihiro Matsumura, 2021. "Profit‐enhancing entries in mixed oligopolies," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 33-55, July.
    15. Yi Liu & Toshihiro Matsumura & Chenhang Zeng, 2021. "The relationship between privatization and corporate taxation policies," Journal of Economics, Springer, vol. 133(1), pages 85-101, June.
    16. Yamada, Kazuo & El Kalak, Izidin & Takahashi, Hidenori, 2018. "On the Dynamics of Small and Medium-Sized Enterprises: Evidence from Japan," ADBI Working Papers 819, Asian Development Bank Institute.
    17. Haraguchi, Junichi & Matsumura, Toshihiro, 2020. "Common Ownership among Private Firms and Privatization Policies," MPRA Paper 102152, University Library of Munich, Germany.

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    More about this item

    Keywords

    Government-controlled banks; Mixed oligopoly; Relationship banking; Small business financing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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