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An Econometric Evaluation of Bank Recapitalization Programs with Bank- and Loan-level Data

Kiyotaka Nakashima ()

MPRA Paper from University Library of Munich, Germany

Abstract: Public capital injections into the banking system are a comprehensive policy program aimed at reducing the financial risks faced by capital-injected banks, thereby stimulating their lending and profitability. This paper evaluates empirically two large-scale bank capital injections in Japan in 1998 and 1999. We begin by extracting the treatment effects of the public injections using bank-level panel data. Using a difference-in-difference estimator in two-way fixed-effects regression models, we find that the public injections significantly reduced the financial risks faced by the capital-injected banks, but did not stimulate their lending and profitability. Next, we investigate the factors that impeded bank lending following the capital injections using a matched sample of Japanese banks and their borrowers. By employing three-way fixed-effects regression models corresponding to the matched sample, we provide evidence that the deterioration of borrower creditworthiness inhibited not only the capital-injected banks, but also other banks, from lending more.

Keywords: public capital injection; treatment effect; capital crunch; default risk; difference-in-difference estimator; three-way fixed-effects model. (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2015-09-17
New Economics Papers: this item is included in nep-ban and nep-cba
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Published in Journal of Banking and Finance C.63(2016): pp. 1-24

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Journal Article: An econometric evaluation of bank recapitalization programs with bank- and loan-level data (2016) Downloads
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