Bank Size and Lending Relationships in Japan

40 Pages Posted: 30 Nov 2006  

Hirofumi Uchida

Kobe University - Graduate School of Business Administration

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Wako Watanabe

Osaka University - Institute of Social and Economic Research (ISER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 16, 2006

Abstract

Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering relationship lending. The most comprehensive analysis of this view found using U.S. data that smaller SMEs borrow from smaller banks and smaller banks have stronger relationships with their borrowers (Berger, Miller, Petersen, Rajan, and Stein 2005) (BMPRS). We employ essentially the same methodology as BMPRS on a unique Japanese data set and obtained findings that are quite interesting from an international comparison point of view. We found like BMPRS that larger firms tend to borrow from larger banks. However, unlike BMPRS we did not find that this was because larger firms are more transparent. Together these results imply that large banks do not necessarily have a comparative advantage in extending transactions-based lending. We also found like BMPRS that smaller banks have strong relationships with their borrowers. However, we find that banking relationships in the U.S. and Japan are strong in somewhat different dimensions. Our paper clarifies these and other interesting similarities and differences between the U.S. and Japan.

Keywords: Banks, Small and Medium Enterprises, Relationship Lending, Transactions-based Lending, Japan

JEL Classification: G21, L22, G32, D82, D83

Suggested Citation

Uchida, Hirofumi and Udell, Gregory F. and Watanabe, Wako, Bank Size and Lending Relationships in Japan (November 16, 2006). Available at SSRN: https://ssrn.com/abstract=948089 or http://dx.doi.org/10.2139/ssrn.948089

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

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Wako Watanabe

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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