Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience

Kang , Jun-Koo; Stulz, René M.

doi:10.2139/ssrn.136708

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Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience

Dice Center for Research in Financial Economics Working Paper No. 98-8

33 Pages Posted: 25 Oct 1998

See all articles by Jun-Koo Kang

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Abstract

From 1990 to 1993, the typical firm on the Tokyo Stock Exchange lost more than half its value and banks experienced severe adverse shocks. We show that firms whose debt had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993. This effect is statistically as well as economically significant and holds when we control for a variety of variables that affect firm performance during this period of time. We find that firms that were more bank-dependent also invested less during this period than other firms. We also show that exogenous shocks to banks during the negotiations leading to the Basle Accord affected bank borrowers significantly.

JEL Classification: G21, G31, G32

Suggested Citation: Suggested Citation

Kang, Jun-Koo and Stulz, Rene M., Do Banking Shocks Affect Borrowing Firm Performance? An Analysis of the Japanese Experience. Dice Center for Research in Financial Economics Working Paper No. 98-8, Available at SSRN: https://ssrn.com/abstract=136708 or http://dx.doi.org/10.2139/ssrn.136708