ESRI Discussion Paper Series No.342
Does the Policy Lending of the Government Financial Institution Mitigate the Credit Crunch? Evidence from the Loan Level Data in Japan

Masahiro Sekino
ISI Software Co., Ltd
Wako Watanabe
Research Fellow at Economic and Social Research Institute, Cabinet Office
Visiting Professor at Faculty of Business and Commerce, Keio University


Using the contract level data, we find that the lending by Japan Finance Corporation for Small and Medium Enterprise (JASME), a state owned lending institution, mitigated a firm’s loss of borrowing from its main bank during the credit crunch. We further find that the JASME’s lending instrumented by the main bank’s lending supply growth as explained by the bank’s capital adequacy, which captures the lending to mitigate the loss of borrowing, had negative effects on the investment rate and that the JASME’s lending had an weak effect to mitigate the cash sensitivity of cash that captures the firm’s financial constraint.

  • Keywords: government financial institution, credit crunch, loan contracts
  • JEL classification: G01, G21, G28

Structure of the whole text(PDF-Format 1 File)

  1. Full TextI will open in a new window(PDF-Format 605 KB)
  2. page1
  3. page2
    1. Introduction
  4. page6
    2. The Credit Crunch, Policy Measures and the Literature About State-Owned Banks
    1. page6
      2.1. The Credit Crunch
    2. page8
      2.2 The Japanese Credit Crunch of 1997-1998 and JASME’s Policy Responses
    3. page10
      2.4. The Relevant Literature about State Owned Banks
  5. page11
    3. Data and Methodology
    1. page11
      3.1. The Hypothesis and the Empirical Models
      1. page15
        Firm profitability
      2. page16
        Investment rate
      3. page17
        Cash to capital stock ratio
      4. page17
        Borrowing growth
      5. page18
        Employment growth
    2. page18
      3.2 Data
  6. page20
    4. Results
    1. page20
      4.1. Descriptive statistics
    2. page20
      4.2. The JASME Loans Regressions
    3. page24
      4.3. The Regression Results for Firm Performance, Real and Financial Behavior
      1. page24
        Firm profitability
      2. page25
        Investment rate
      3. page25
        Cash to capital stock ratio
      4. page26
        Borrowing growth
      5. page27
        Employment growth
      6. page27
        Medium-term effects of JASME loans on investment rate and employment growth
      7. page27
  7. page30
    5. Conclusion
  8. page32
  9. page35
  10. page40
    Figure 1. The Trends of Growths of Working Capital Loans and Equipment Loans by the JASME
  11. page41
    1. page41
      Table 1-1. Descriptive Statistics of the Variables Used in the Regressions for JASME Loans
    2. page42
      Table 1-2. Descriptive Statistics of the Variables Used in the Performance Measure Regressions
    3. page43
      Table 1-2. Descriptive Statistics of the Variables Used in the Performance Measure Regressions, Cotd.
    4. page44
      Table 2. The Regression Results for Equation (1): The Logarithm of Loans as a Dependent Variable
    5. page44
      Table 3. The Results of the Regressions of ROA in FY 2001
    6. page45
      Table 4. The Year by Year Results of the Regressions of ROA and the EBITDA to Total Assets Ratio
    7. page46
      Table 5. The Results of the Investment Rate Regressions
    8. page47
      Table 6. The Results of Cash, Borrowing Growth and Employment Growth Regressions
    9. page49
      Table 7. The Year by Year Results of the Regressions of the Investment Rate and the Employment Growth
    10. page50
      Table 8. The Year by Year Results of the Regressions of ROE and the Investment Rate without Ex-Ante ROA and Leverage as Instrumental Variables
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