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The long-term effects of bank bailouts on corporate financing policies

Nobuyuki Kanazawa

Journal of Banking & Finance, 2025, vol. 176, issue C

Abstract: This study examines the long-term effects of the 1990s Japanese bank bailouts on borrower firms’ financing policies. Using a two-way fixed effects model on data from Japanese banks and listed companies, I find that these interventions significantly influenced firms’ financial strategies. Firms associated with banks that received bailouts exhibited persistent increases in their long-term debt-to-asset ratios and decreases in their cash-to-asset ratios. The effects diverged between zombie and non-zombie firms: while non-zombie firms exhibited minimal capital structure changes, zombie firms demonstrated pronounced increases in long-term debt ratios, decreases in cash ratios and retained earnings, and were more likely to maintain relationships with their main banks. These findings suggest that bank bailouts can influence capital allocation patterns, potentially favoring less efficient zombie firms, with implications for economic efficiency and financial stability.

Keywords: Capital injection; Banking crisis; Corporate borrowing; Cash holdings; Bank relationships (search for similar items in EconPapers)
JEL-codes: E44 G21 G31 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000743

DOI: 10.1016/j.jbankfin.2025.107454

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