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The Bright and Dark Side of Financial Support from Local and Central Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan

Tetsuji Okazaki, Toshihiro Okubo () and Eric Strobl
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Tetsuji Okazaki: Graduate School of Economics, University of Tokyo, Japan
Eric Strobl: Department of Economics, Bern University, Switzerland

No CARF-F-511, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: Natural disasters can seriously damage firms as well as the banks that they use independent of their size. However, it is small- and medium-sized firms in particular that will be affected by this because they tend to be financially constrained and thus greatly depend on these potentially damaged local banks for financing. In this paper, we focus on the Great Kanto Earthquake of 1923, which resulted in serious damage to small- and medium-sized firms and banks in Yokohama City, to investigate how effective the provision of loans by local banks, as well as the Earthquake Bills policy implemented by the Bank of Japan, was in helping firms recover. Using linked firm- and bank-level datasets, we find that larger local banks allowed damaged firms to survive and grow. The Earthquake Bills policy mitigated the negative impact of bank damage on firms and prevented credit crunch, although this deteriorated the balance sheet of local banks and resulted in financial instability and a banking crisis as a side effect.

Pages: 47
Date: 2021-04
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-his, nep-sbm and nep-ure
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Related works:
Working Paper: The Bright and Dark Side of Financial Support from Local and Central Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan (2021) Downloads
Working Paper: The Bright and Dark Side of Financial Support from Local and Central Banks after a Natural Disaster: Evidence from the Great Kanto Earthquake, 1923 Japan (2020) Downloads
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