IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2004-086.html
   My bibliography  Save this paper

Japan’s Distressed-Debt Market

Author

Listed:
  • Kazunari Ohashi
  • Mr. Manmohan Singh

Abstract

Sizable risk capital from outside may be necessary to accelerate Japan's corporate restructuring to replace the stock of impaired bank loans. To attract risk capital, impaired loans must find market-clearing prices. However, the asymmetry in the bid-ask prices faced by banks and distressed-debt investors continues to stall efforts to create a liquid distressed-debt market. This paper asserts that the wedge between the prices faced by different participants is primarily a result of different valuation methods employed by banks and distressed-debt investors. On the one hand, banks do not recognize "maturity default" that results in banks rolling over impaired-loan accounts, effectively turning them into perpetual debt, which is expected to capture any upside potential for value. On the other hand, distressed-debt investors presently view their investments as equity stakes that require improved cash flows, unlike the buy-and-sell distressed-collateral market that existed in the mid-1990s. We suggest that bids from distressed-debt investors may not be as low as they are deemed by local banks and the asymmetry in prices may be reduced if banks value their claims as corporate equity.

Suggested Citation

  • Kazunari Ohashi & Mr. Manmohan Singh, 2004. "Japan’s Distressed-Debt Market," IMF Working Papers 2004/086, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2004/086
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=17239
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yumi Saita, 2003. "Land Prices in the Tokyo Metropolitan Area: A Hedonic Analysis of Judicial Auction Prices," Bank of Japan Working Paper Series 03-E-4, Bank of Japan.
    2. James R. Barth, 1991. "The Great Savings and Loan Debacle," Books, American Enterprise Institute, number 918256, September.
    3. Mr. Se-Jik Kim, 2003. "Macro Effects of Corporate Restructuring in Japan," IMF Working Papers 2003/203, International Monetary Fund.
    4. Tsuyoshi Oyama & Tetsuya Shiratori, 2001. "Insights into the Low Profitability of Japanese Banks: Some Lessons from the Analysis of Trends in Banks' Margins," Bank of Japan Working Paper Series Bank Examination and Surv, Bank of Japan.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Panagiotis Barkas & Mauro Pisu, 2018. "Boosting investment in Greece," OECD Economics Department Working Papers 1506, OECD Publishing.
    2. repec:hal:wpspec:info:hdl:2441/6824 is not listed on IDEAS
    3. repec:spo:wpecon:info:hdl:2441/6824 is not listed on IDEAS
    4. repec:hal:spmain:info:hdl:2441/6824 is not listed on IDEAS
    5. repec:spo:wpmain:info:hdl:2441/6824 is not listed on IDEAS
    6. Jérôme Sgard, 2006. "Do legal origins matter? The case of bankruptcy laws in Europe 1808-1914," Post-Print hal-01021354, HAL.
    7. Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2009. "Productivity growth and biased technological change: Credit banks in Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 924-936, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Garci­a-Marco, Teresa & Robles-Fernández, M. Dolores, 2008. "Risk-taking behaviour and ownership in the banking industry: The Spanish evidence," Journal of Economics and Business, Elsevier, vol. 60(4), pages 332-354.
    2. Deroose, Servaas & Turrini, Alessandro, 2005. "The Short-Term Budgetary Implications of Structural Reforms. Evidence from a Panel of EU Countries," CEPR Discussion Papers 5217, C.E.P.R. Discussion Papers.
    3. Donald Hester, 1992. "Financial institutions and the collapse of real estate markets," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 36, pages 114-150.
    4. Guo, Lin, 1999. "When and why did FSLIC resolve insolvent thrifts?," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 955-990, June.
    5. Imai, Masami, 2019. "Regulatory responses to banking crisis: Lessons from Japan," Global Finance Journal, Elsevier, vol. 39(C), pages 10-16.
    6. John B. Shoven & Scott B. Smart & Joel Waldfogel, 1992. "Real Interest Rates and the Savings and Loan Crisis: The Moral Hazard Premium," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 155-167, Winter.
    7. Hesna Genay, 1998. "Assessing the condition of Japanese banks: how informative are accounting earnings?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q IV), pages 12-34.
    8. Takashi Nagahata & Yumi Saita & Toshitaka Sekine & Towa Tachibana, 2004. "Equilibrium Land Prices of Japanese Prefectures: A Panel Cointegration Analysis," Bank of Japan Working Paper Series 04-E-9, Bank of Japan.
    9. Esty, Benjamin C., 1997. "Organizational form and risk taking in the savings and loan industry," Journal of Financial Economics, Elsevier, vol. 44(1), pages 25-55, April.
    10. Ronnie J. Phillips, "undated". "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
    11. Randall W. Bennett & Christine Loucks, 1996. "Politics And Length Of Time To Bank Failure: 1986–1990," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 29-41, October.
    12. William Gissy, 2000. "Regulatory forbearance: A reconsideration," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(4), pages 722-729, November.
    13. Koichiro Kamada & Wataru Hirata & Hajime Wago, 2007. "Determinants of Land-Price Movements in Japan," Bank of Japan Working Paper Series 07-E-7, Bank of Japan.
    14. Lawrence J. White, 1992. "What Should Banks Really Do?," Contemporary Economic Policy, Western Economic Association International, vol. 10(3), pages 104-112, July.
    15. Richard J. Cebula, 2014. "Where Has The Currency Gone? And Why? The Underground Economy And Personal Income Tax Evasion In The U.S., 1970-2008," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 6(1), pages 36-52, June.
    16. Pontell, Henry N., 2005. "Control fraud, gambling for resurrection, and moral hazard: Accounting for white-collar crime in the savings and loan crisis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(6), pages 756-770, December.
    17. Imai, Masami & Takarabe, Seitaro, 2011. "Transmission of liquidity shock to bank credit: Evidence from the deposit insurance reform in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 143-156, June.
    18. Richard J. Cebula, 2014. "The underground economy in the U.S.A.: preliminary new evidence on the impact of income tax rates (and other factors) on aggregate tax evasion 1975-2008," PSL Quarterly Review, Economia civile, vol. 67(271), pages 451-481.
    19. Radić, Nemanja, 2015. "Shareholder value creation in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 199-207.
    20. Karl Beitel, 2000. "Financial Cycles and Building Booms: A Supply Side Account," Environment and Planning A, , vol. 32(12), pages 2113-2132, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2004/086. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.