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Economic Conditions and Japanese Firm Financing Abstract

Source: economicsbulletin.vanderbilt.edu
Topic: Economic Conditions

Sort Desciption: between firm liabilities and economic conditions may allow us to determine whether non-bank ... similarly in response to changes in economic conditions ...

Content Inside: Economic Conditions and Japanese Firm Financing Guy Yamashiro Iichiro Uesugi California State University Long Beach Research Institute of Economy Trade and Industry Abstract This paper investigates the role played by non-financial firms in Japanese corporate financing. We find that non-financial firms are an important source of credit for both small and large firms in Japan. We also document that adverse real and financial shocks have similar effects on small and large firm financing. The primary implication of our results is that credit from the non-financial private sector in Japan serves to lessen the adverse impact of real and financial shocks on the economy. The authors would like to thank Kazuo Ogawa and Steven Sumner for many helpful comments and suggestions. Citation: Yamashiro Guy and Iichiro Uesugi (2006) "Economic Conditions and Japanese Firm Financing." Economics Bulletin Vol. 5 No. 11 pp. 1-17 Submitted: January 19 2006. Accepted: August 28 2006. URL: http://economicsbulletin.vanderbilt.edu/20 06/volume5/EB-06E00001A.pdf 1 1. Introduction While financial institutions play a dominant role in the allocation of funds within the Japanese economy they are not the sole providers of credit in the economy as the non-financial sector is also a critical source of (business) financing. In Japan private enterprises receive approximately a third of their financing in the form of trade credit and loans from the non-financial sector. Understanding the relationship between bank 1 and non-bank financing therefore is crucial to not only understanding the financing decisions of firms but also to understanding how changes in financing affects the real activity of these firms. The underlying issue of the existence of frictions in Japanese credit markets has been well documented especially among small and medium enterprises (SMEs). 2 Moreover there is an abundant body of literature which finds that during times of distress in the banking sector ...

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