Among stock-market-listed Japanese firms in 1994-95, the financial health of
the firm's main bank did not significantly affect its investment behavior,
after controlling for stock market valuation and cash flow. However, among the
subset of bank-dependent firms, investment was lower by over 50 percent at
firms that have one of the lowest-rated banks as their main bank. Because
low-rated banks are smaller and deal with fewer firms, and because
bank-dependent firms themselves tend to be smaller than non-bank-dependent
firms, the aggregate effect on business investment in 1994-95 that I identify
is tiny. These results contrast with Gibson (1995), a similar study which,
using data for 1991-92, found a small effect of poor bank health on investment
for all stock-market-listed Japanese firms and no difference between
bank-dependent and non-bank-dependent firms.
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Last update: July 19, 2001