Impaired Bank Health and Default Risk

Shin-ichi Fukuda (), Munehisa Kasuya and Kentaro Akashi
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Munehisa Kasuya: Bank of Japan
Kentaro Akashi: University of Tokyo

No 05-E-13, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Empirical studies in corporate finance have long been interested in the role of banks in reducing the costs of financial distress. The purpose of this paper is to investigate how various measures of bank health and how defaults of major trading partners affected the probability of bankruptcy among medium-size firms in Japan. Using probit models, we examine the causes of bankruptcy for unlisted Japanese companies in the late 1990s and early 2000s. The environment and events in Japan provide a "natural experiment" that allows the empirical test. We find that several measures on bank-specific financial health have significant impacts on a borrower's probability of bankruptcy, even when observable characteristics relating to these borrower's financial variables are controlled for. In particular, a close bank-firm relationship--which usually reduces the probability of bankruptcy--exacerbates the impacts of a financial crisis, which substantially damages other bank health measures as well.

Keywords: Bankruptcy; Bank-firm relationship; Hold-up problem; Unlisted firms (search for similar items in EconPapers)
JEL-codes: E44 G32 G33 (search for similar items in EconPapers)
Date: 2005-09
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Impaired bank health and default risk (2009)
Working Paper: Impaired Bank Health and Default Risk (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:05-e-13

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