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Floods and Loan Reallocation: New evidence

Yoshiaki Ogura (), Duc Giang Nguyen and Thu Ha Nguyen

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

Abstract: We examine the impact of severe floods on bank loans, trade credit, investment, and employment using corporate-level panel data of small businesses and bank-level panel data, matched with municipality-level flood damage information. We find that bank loans increase for firms located in a flood area but reduce for physically damaged firms. The former increases the investment for tangible assets after a flood while the latter reduces it. The latter firms increase their dependence on trade credits than bank loans. From the bank-level panel data, we do not document any significant impact of floods on total loans and bank financial soundness. These results imply that loans and resources are reallocated from physically damaged firms to other firms located in nearby safer places, facing recovery demand and fewer competitors.

Pages: 52 pages
Date: 2022-09
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