Banks, Credit Supply, and the Life Cycle of Firms: Theory and Evidence from Late Nineteenth Century Japan

Sergi Basco and John Tang

No 2, CEH Discussion Papers from Centre for Economic History, Research School of Economics, Australian National University

Abstract: How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. Our main result shows that, consistent with our theoretical model, the lifespan of firms decreases with bank capital. Capital-abundant regions have more firm destruction. For manufacturing, we document that these regions have both increased firm creation and destruction. These results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more economic dynamism.

Keywords: credit supply; banks; liquidity constraints; firm dynamics; entrepreneurship (search for similar items in EconPapers)
JEL-codes: E51 N15 O16 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-ent, nep-fdg, nep-his and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:auu:hpaper:095

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