The Effect of Government Bank Lending: Evidence from the Financial Crisis in Japan

45 Pages Posted: 3 Jan 2015 Last revised: 9 Nov 2017

See all articles by Yupeng Lin

Yupeng Lin

National University of Singapore

Anand Srinivasan

CAFRAL, Reserve Bank of India; National University of Singapore - Department of Finance

Takeshi Yamada

Australian National University (ANU)

Date Written: November 1, 2017

Abstract

We find that increases in lending by Japanese Government Owned Bank (GOB) during the crisis in early 1990’s had a strong incremental impact on firm level investment, especially for credit constrained firms. Firms have better future accounting performance when their investment is associated with increases in GOB lending. The impact of increases in private bank lending on real investment is much smaller than that of GOB lending. This is partly driven by the tendency of private banks to support zombie firms and partly due to an increase in precautionary cash holdings of firms receiving private bank credit. Thus, our results show that direct intervention by GOBs can be effective in mitigating credit constraints and stimulating investment during a crisis, even for publicly traded companies.

Keywords: banking, crisis, bailout

JEL Classification: E51, E65, G28

Suggested Citation

Lin, Yupeng and Srinivasan, Anand and Yamada, Takeshi, The Effect of Government Bank Lending: Evidence from the Financial Crisis in Japan (November 1, 2017). Available at SSRN: https://ssrn.com/abstract=2544446 or http://dx.doi.org/10.2139/ssrn.2544446

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Anand Srinivasan (Contact Author)

CAFRAL, Reserve Bank of India ( email )

C-8, 8th Floor, Reserve Bank of India
Bandra-Kurla Complex, Bandra (East)
Mumbai, Maharashtra 400051
India

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

Takeshi Yamada

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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