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Evidence on a cause of Japan's prolonged banking crisis

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  • M. Konishi
  • Y. Yasuda

Abstract

This article shows that during the 1990s bank relationships tightened liquidity constraints when firms had good prospects, and relaxed the constraints when firms had poor prospects. These results suggest that both under- and over-investment problems were more prevalent for firms that had close ties to banks, providing an additional reason for the delay in solving the bad loan problem in Japan. Furthermore, the results cast doubt on the conventional view that main banks are efficient at restructuring financially distressed firms, at least during the 1990s when bank health was severely damaged by the bad loans problem.

Suggested Citation

  • M. Konishi & Y. Yasuda, 2003. "Evidence on a cause of Japan's prolonged banking crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 10(13), pages 853-855.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:13:p:853-855
    DOI: 10.1080/1350485032000148240
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    References listed on IDEAS

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    1. Sheard Paul, 1994. "Reciprocal Delegated Monitoring in the Japanese Main Bank System," Journal of the Japanese and International Economies, Elsevier, vol. 8(1), pages 1-21, March.
    2. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
    3. David M. Reeb & Chuck C. Y. Kwok, 2000. "Mainbanks And Investment Efficiency In Financial Distress," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 23(4), pages 395-410, December.
    4. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    5. Perfect, Steven B. & Wiles, Kenneth W., 1994. "Alternative constructions of Tobin's q: An empirical comparison," Journal of Empirical Finance, Elsevier, vol. 1(3-4), pages 313-341, July.
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    Cited by:

    1. Monzur Hossain, 2005. "Can Japan avert any future banking crisis?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 425-429.

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