Financial Shocks, Bankruptcy, and Natural Selection

Posted: 8 Jun 2017

See all articles by Hirofumi Uchida

Hirofumi Uchida

Kobe University - Graduate School of Business Administration; Stanford University - Walter H. Shorenstein Asia-Pacific Research Center (APARC)

Daisuke Miyakawa

Hitotsubashi University

Kaoru Hosono

Gakushuin University - Economics

Arito Ono

Chuo University

Taisuke Uchino

Daito Bunka University

Iichiro Uesugi

Hitotsubashi University

Date Written: 2015

Abstract

In this paper, we investigate whether financial shocks to firms affect their probability of bankruptcy. We also examine whether these shocks affect the natural selection of the firms, whereby more efficient firms are less likely to go bankrupt. By using the data on the bankruptcy of firms after the Great Tohoku Earthquake, we examine the impact of the damage to lender banks on the firms’ probability of bankruptcy. To extract the impact of purely exogenous financial shocks on bankruptcy, we focus on firms located outside the earthquake-affected area but that transact with banks located inside the area. Our findings somewhat counter-intuitively suggest that a damaged bank reduces the probability of bankruptcy and weakens the natural selection of firms. We further examine the impact of the injection of public capital into damaged banks and obtain some evidence that the injection reduces the probability of the bankruptcy of their borrowers and weakens the natural selection.

Keywords: Firm bankruptcy; Natural selection; Natural disaster; Capital injection; Financial constraint

JEL Classification: L10; G21

Suggested Citation

Uchida, Hirofumi and Miyakawa, Daisuke and Hosono, Kaoru and Ono, Arito and Uchino, Taisuke and Uesugi, Iichiro, Financial Shocks, Bankruptcy, and Natural Selection (2015). Japan and the World Economy, vol 36, pp.123–135, 2015.. Available at SSRN: https://ssrn.com/abstract=2982302

Hirofumi Uchida (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan
81-78-803-6949 (Phone)

HOME PAGE: http://www.b.kobe-u.ac.jp/~uchida

Stanford University - Walter H. Shorenstein Asia-Pacific Research Center (APARC) ( email )

Stanford, CA 94305
United States

Daisuke Miyakawa

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

Kaoru Hosono

Gakushuin University - Economics ( email )

1-5-1 Mejiro, Toshima-ku
Tokyo 171-8588
Japan

Arito Ono

Chuo University ( email )

2nd floor Blg 4 Tampa Campus
742-1 Higashinakano, Hachioji
Tokyo 192-03
Japan

HOME PAGE: http://https://sites.google.com/site/aritoono/Home

Taisuke Uchino

Daito Bunka University ( email )

Iichiro Uesugi

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan
+81-42-580-8348 (Phone)

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