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Japan's Bubble, Deflation, and Long-term Stagnation$
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Koichi Hamada, Anil K Kashyap, and David E. Weinstein

Print publication date: 2010

Print ISBN-13: 9780262014892

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262014892.001.0001

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The Changing Role of Main Banks in Aiding Distressed Firms in Japan

The Changing Role of Main Banks in Aiding Distressed Firms in Japan

(p.309) 9 The Changing Role of Main Banks in Aiding Distressed Firms in Japan
Japan's Bubble, Deflation, and Long-term Stagnation

Joe Peek

The MIT Press

This chapter examines the negative correlation between bank financing and corporate performance in Japan during the 1990s, focusing on firms that experienced a clear decline in profitability. It compares the subsequent profit rates for firms which did and did not receive increases in bank loans, suggesting that distressed firms which received more loans from their primary lender posted substantially higher profit rates over the four years following the distress. Between 1993 and 1997, however, increased bank loans were associated with a deterioration in operating income. These patterns were observed for manufacturing firms. After providing a historical overview of the relationship between banks and firms in Japan, the chapter looks at the impact of bank credit on firm performance before and after the bursting of the economic bubble, and also discusses two types of distress, financial and operational.

Keywords:   bank financing, corporate performance, Japan, profitability, bank loans, distressed firms, operating income, manufacturing firms, banks, economic bubble

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