Financial shocks, bankruptcy, and natural selection

Hirofumi Uchida, Daisuke Miyakawa, Kaoru Hosono, Arito Ono, Taisuke Uchino and Iichiro Uesugi

Japan and the World Economy, 2015, vol. 36, issue C, 123-135

Abstract: In this paper, we investigate whether financial shocks to firms affect their probability of bankruptcy. We also examine whether these shocks affect the natural selection of the firms, whereby more efficient firms are less likely to go bankrupt. By using the data on the bankruptcy of firms after the Great Tohoku Earthquake, we examine the impact of the damage to lender banks on the firms’ probability of bankruptcy. To extract the impact of purely exogenous financial shocks on bankruptcy, we focus on firms located outside the earthquake-affected area but that transact with banks located inside the area. Our findings somewhat counterintuitively suggest that a damaged bank reduces the probability of bankruptcy and weakens the natural selection of firms. We further examine the impact of the injection of public capital into damaged banks and obtain some evidence that the injection reduces the probability of the bankruptcy of their borrowers and weakens the natural selection.

Keywords: Firm bankruptcy; Natural selection; Natural disaster; Capital injection; Financial constraint (search for similar items in EconPapers)
JEL-codes: G21 L10 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:36:y:2015:i:c:p:123-135

DOI: 10.1016/j.japwor.2015.11.002

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