Bank Health and Investment: An Analysis of Unlisted Companies in Japan

Shin-ichi Fukuda (), Munehisa Kasuya and Jouchi Nakajima
Additional contact information
Munehisa Kasuya: Bank of Japan

No 05-E-5, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Because a borrower often faces switching costs in dealing with individual banks, the financial health of any given bank might affect the borrower's cost of funds. These costs would be particularly large for firms that have close relationships with relatively few banks. The purpose of this paper is to investigate whether the weakened financial conditions of banks have reduced the investment activities of small and medium firms in Japan. Estimating Tobin's Q investment functions, we examine the determinants of investment for unlisted Japanese companies in the late 1990s and the early 2000s. We find that several measures of bank-specific financial health have significantly large impacts on investment by borrowers, even when observable characteristics relating to Tobin's Q, cashflow, and leverage are controlled. We also find that multiple banking relationships, which tend to have a negative impact on investment in general, may be beneficial in relieving hold-up problems when deteriorated bank health does matter.

Keywords: Tobin's Q; Bank-firm relationship; Hold-up problem; Unlisted firms (search for similar items in EconPapers)
JEL-codes: E22 G21 G31 G32 (search for similar items in EconPapers)
Date: 2005-04
References: View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/wps_2005/data/wp05e05.pdf (application/pdf)

Related works:
Working Paper: Bank Health and Investment: An Analysis of Unlisted Companies in Japan (2005)
Working Paper: Bank Health and Investment: An Analysis of Unlisted Companies in Japan (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:05-e-5

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().