We calculate abnormal stock returns for Japanese non-financial companies around major events associated with the banking crisis (1995-2000), and find that not all companies were equally sensitive to the malaise of the banking sector: the most affected were small, leveraged, low-tech companies with low credit ratings and low market to book ratios. This is consistent with "credit crunch" theories (companies with limited access to financial markets are sensitive to changes in bank lending) and with claims that innovation is rarely financed by bank debt. We do not find much evidence on the alleged misallocation of loans to support ailing bank clients.
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A previous version of this paper appeared under the title “Japan’s Banking Crisis: Who Has the Most to Lose”. Work on this paper began while Yishay Yafeh was visiting the Institute of Economic Research, Hitotsubashi University, whose hospitality and financial support are gratefully acknowledged. We are also grateful for financial support from the Nihonbashi Institute of Finance (Waseda University) and from the Krueger Center for Finance (Hebrew University). We thank the Editor, two anonymous referees, Kee-Hong Bae, Daniel Baraz, Hedva Ber, Mark Flannery, Takeo Hoshi, Eugene Kandel, Colin Mayer, Randall Morck, Seki Obata, Marco Pagano, Adi Raveh, Orly Sade, Efrat Tolkowsky, and seminar participants at Columbia, the Hebrew University, Hitotsubashi, Korea University, RIETI, Tel Aviv University, the University of Alberta, the University of Houston, the University of Toronto, the Japanese Association of Financial Studies, and the CESifo Conference “Economic Stagnation in Japan” for extremely helpful suggestions. N. Aoyanagi, S. Harel, and especially T. Ogino provided outstanding research assistance.
- Banking crisis