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Credit Reallocation, Firm Size, and Productivity

Koji Sakai and Iichiro Uesugi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We examine the characteristics of credit reallocation and its relationship with productivity by employing a comprehensive dataset of Japanese firms of all sizes covering the period 1980-2014. We find the following: (1) Credit reallocation across firms is not only substantially larger than the net change in credit but also larger than the reallocation of labor and physical capital. (2) Credit destruction fluctuates more than credit creation. (3) Credit reallocation and net credit changes are procyclical for large firms but they are not significantly correlated with the business cycle for SMEs. (4) Credit reallocation is efficiency-enhancing in general in that the interest-bearing debt of more productive firms increased, while that of less productive firms decreased; however, credit reallocation turned efficiency-reducing during the 1990s, when the Japanese economy and financial markets experienced a series of adverse shocks.

New Economics Papers: this item is included in nep-eff
Date: 2019-02
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