Natural Disasters, Damage to Banks, and Firm Investment

Kaoru Hosono, 薫 細野, Daisuke Miyakawa, 大介 宮川, Taisuke Uchino, 泰助 内野, Makoto Hazama, Arito Ono, 有人 小野, Hirofumi Uchida, 浩史 内田, Iichiro Uesugi and 威一郎 植杉

No 18, Working Paper Series from Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University

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.

Keywords: Natural disasters; Bank damage; Lender bank; Capital investment (search for similar items in EconPapers)
JEL-codes: E22 G21 G3 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/23264/ifn_wp018.pdf

Related works:
Journal Article: NATURAL DISASTERS, DAMAGE TO BANKS, AND FIRM INVESTMENT (2016)
Working Paper: Natural Disasters, Damage to Banks, and Firm Investment (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:cinwps:18

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