 Natural Disasters, Damage to Banks, and Firm InvestmentKaoru Hosono, Daisuke Miyakawa, Taisuke Uchino, Makoto Hazama, Arito Ono, Hirofumi Uchida and Iichiro Uesugi Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Abstract: This paper investigates the effect of banks' lending capacity on firms' capital investment. To overcome the difficulties in identifying purely exogenous shocks to firms' bank financing, we utilize the natural experiment provided by the Great Hanshin-Awaji (Kobe) Earthquake in 1995. Using a unique firm-level dataset that allows us to identify firms and banks in the earthquake-affected area, together with information on bank-firm relationships, we find that the investment ratio of firms located outside of the earthquake-affected area but with their main banks inside the area was lower than that of firms that were both located and had their main banks outside of the area. This result implies that the weakened lending capacity of damaged banks exacerbated the borrowing constraints on the investment of their undamaged client firms. We also find that the negative impact is robust for two alternative measures of bank damage: that to the bank headquarters and that to the branch network. However, the impacts of the two are different in timing; while that of the former emerged immediately after the earthquake, the latter emerged with a one-year lag. Pages: 31 pages Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:12062 Access Statistics for this paper More papers in Discussion papers from Research Institute of Economy, Trade and Industry (RIETI) Contact information at EDIRC. |
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