وابستگی های بانکی و محدودیت های مالی در سرمایه گذاری: شواهدی از فلج شدن بازار اوراق قرضه شرکتی در ژاپن

This paper investigates whether firms are able to substitute bank loans for public debt when the latter become less available to firms. To do so, this paper utilizes the 2008 financial crisis and its impact on Japanese markets as a natural experiment. Because the Japanese banking sector remained functional while the corporate bond markets were paralyzed, the data from Japan during this period provide us with an ideal environment to examine this hypothesis. I specifically examined whether firms with large holdings of corporate bonds maturing in FY2008 were financially constrained, by comparing the changes in their capital investment expenditures and borrowing conditions with those of bank-dependent firms. The main empirical results indicate that (1) firms with large holdings of corporate bonds maturing in FY2008 did not reduce investment expenditures; (2) instead, they exhibited higher increments in bank loans; and (3) firms that maintained relatively close bank-firm relationships had greater access to bank loans with low borrowing costs. These findings demonstrate that Japanese firms were able to substitute bank loans for public debt during the crisis and imply that the Japanese banking sector worked efficiently to replace public debt markets during the crisis.

The recent global financial crisis severely damaged almost every economy, and economists need to urgently shed light on the causes of the crisis as well as potential remedies. The crisis also provides us with the opportunity to investigate the causal links between financial shocks and the real economy, which are usually difficult to identify. By utilizing this crisis and its impact on Japanese markets as a natural experiment, this paper primarily aims to investigate if firms are able to substitute bank loans for public debts (such as commercial papers and corporate bonds) when the markets for public debt experience adverse shocks. Because the Japanese banking system remained quite functional even as the commercial paper and corporate bond markets froze after the collapse of Lehman Brothers, data from Japanese markets provide us with an ideal environment to examine this question in isolation from bank-side factors. Concretely, this paper examines whether firms with a large amount of bonds maturing during the crisis face financial constraints, by comparing their changes in terms of investments and borrowing conditions for bank loans with those of bank-dependent firms. Because we can expect heterogeneity in the extent of bank dependency even among bond-issuing firms, the data also enable us to investigate how existing bank-firm relationships affect the availability of bank loans to firms. In the existing literature on corporate finance and the bank-lending channel of monetary policy, many empirical studies have focused on the substitutability between bank loans and public debt when the availability of bank loans becomes limited. For example, Kashyap et al. (1994) and Chava and Purnanandam (2011) find that bank loans and public debt are imperfectly substitutable by demonstrating that firms without access to public debt markets reduce their investments during periods of tight monetary policy and banking crises. These findings imply that asymmetric information between firms and investors limits the ability of firms to switch from bank loans to public dept. However, little is known regarding the opposite situation, that is, the question of whether bank loans are substitutable for public debt. Following the literature on bank-firm relationships, such as Chan et al. (1986) and Petersen and Rajan (1995), it is predicted that banks are not willing to meet the sudden demand for loans from public-debt-dependent firms because banks have not accumulated enough information on such client firms through transactions.1 Certainly, Hoshi et al. (1990) demonstrate that the Japanese firms that tried to be less dependent on banks during the 1980s were financially constrained relative to firms that maintained close relationships with their banks. That is, if firms reduce bank dependency, their access to bank loans will be limited, making information asymmetries between firms and banks more severe. The empirical findings provided by Hoshi et al. (1990) imply that bank loans may not be substitutable for public debt. In a sense, their findings can be regarded to relate to the costs of disintermediation. Following the discussions of Holmström and Tirole (1998), who analyze the role of indirect finance, the advantage of private (or bank loans) over public debt is related to its ability to provide firms with insurance against liquidity shocks. Especially in Japan, it has been suggested that one of the advantages of the main bank system is that firms are supplied with implicit insurance so that they can be rescued by their main banks if exposed to liquidity shocks (Osano and Tsutsui, 1985 and Sheard, 1989). Therefore, the loss of such functions in the course of financial liberalization can result in public debt market shocks more easily propagating into the real economy.2 Despite its importance, the methodology of Hoshi et al., 1990 and Hoshi et al., 1991, which measures the extent of financial constraints by the sensitivities of cash flows in reduced-form investment functions, has been criticized (Kaplan and Zingales, 1997 and Hovakimian and Titman, 2006).3 From an empirical viewpoint, the simultaneity of firm investment and financing decisions makes it difficult for researchers to identify causal relationships. As Hovakimian and Titman (2006) suggest, the most serious criticism is the possibility that cash flows also reflect investment opportunities that cannot be controlled for by Tobin’s q. In other words, the reason firms can earn cash flows may be related to the fact that they have profitable investment projects. Because Tobin’s average q is measured by the market value, which reflects the evaluations of investors, the sensitivities of cash flows could be larger for firms that are suffering from severe asymmetric information problems with their investors. In order to overcome this limitation, a number of studies have attempted to determine the exogenous events through which the cash flows of firms were altered independently of investment opportunities. For example, Blanchard et al. (1994) focus on the investment activities of firms that experienced cash windfalls in the US. Likewise, Lamont (1997) compares the investment expenditures of the non-oil subsidiaries of oil companies with those of non-oil companies during the 1986 decline in oil prices. These studies reject the perfect capital market hypothesis. However, they fail to obtain adequate sample sizes.4 Recent empirical literature focuses on large-scale exogenous financial shocks to firms. Chava and Purnanandam (2011) regard the Russian financial crisis of 1998 as an exogenous shock to the US banking sector and demonstrate that bank-dependent firms experienced larger declines in their investment expenditures compared to those that had access to bond markets during this period. Almeida et al. (2009) try to more clearly identify the firms that may have experienced financial constraints during the recent global financial crisis. They focus on the structure of firm debt maturity and demonstrate that the US firms that had large amounts of maturing long-term debts (more than 20% of existing long-term debts) significantly reduced their investment expenditures. Following the recent empirical literature, this paper utilizes the 2008 financial crisis as a natural experiment to examine whether bank loans can substitute public debt and whether the intensity of existing bank-firm relationships is related to the access of firms to bank loans. In Japan, it was reported that the corporate bond markets were paralyzed during the crisis, whereas the banking sector remained relatively healthy (Bank of Japan, 2009a and Bank of Japan, 2009b). Firms that had reduced their dependency on banks were therefore hit the hardest by the financial shock. The identification strategy of this paper makes use of this fact and focuses on the maturity compositions of firm liabilities. That is, for “unlucky” firms that had issued large amounts of corporate bonds that matured during the crisis, it became difficult to refinance by issuing new bonds. As a result of the exogenous shock, their demand for bank loans shifted outward. As discussed in Hoshi et al. (1990), if the problem of asymmetric information between firms and banks worsens when bank dependency is reduced and bank loans are therefore not substitutable for public debt, these “unlucky” firms would face financial constraints because their banks would require high lemon premiums or would possibly reject their loan applications (rationing). As a result, their investment expenditures are expected to decline, all else being equal. This paper classifies firms that had maturing bonds as “treated groups” and examines whether they were financially constrained. This is done by comparing their investment expenditures and borrowing conditions during the crisis with those of bank-dependent firms, whose economic attributes were considered to be ex-ante identical. 5 The empirical results of this paper are summarized as follows. First, the firms with large amounts of corporate bonds maturing in FY2008 did not decrease their investment expenditures relative to bank-dependent firms. Second, bank loan balances increased sharply for less bank-dependent firms. Third, by focusing on heterogeneity in the intensity of bank-firm relationships, this paper finds that treated firms that maintained close bank-firm relationships had greater access to bank loans with low borrowing costs. Specifically, this paper identifies this tendency among firms with a large proportion of bank loans and whose banks are one of their major shareholders. In addition, I find that firms with more existing bank relationships had greater access to bank loans. Finally, it also turns out that the intensity of bank-firm relationships was relatively high on average, even for treated firms. These findings suggest that firms were able to substitute bank loans for public debt in Japan during the period of the global financial crisis because the problems of asymmetric information were mitigated through existing bank-firm relationships, even for bond-issuing firms. This study contributes to the existing empirical literature on corporate finance and banking with regard to bank-firm relationships and the role of the banking sector by providing causal evidence. This paper also contributes to studies on the Japanese economy. Although Japan was not at the epicenter of the 2008 financial crisis, among the advanced economies, its real economy was the most severely damaged. This paper attempts to examine whether the significant and rapid economic contraction that Japan experienced in the last two quarters of FY2008 was related to the shocks in the public debt markets. The remainder of the paper is organized as follows. In the second section, I describe the changes in the Japanese public debt market during the 2008 financial crisis to explain my identification strategy. The data set is described in Section 3 and is followed by the empirical results, which are described in Section 4. Section 5 discusses the results and their implications, and Section 6 concludes the paper.

This paper investigates the substitutability between bank loans and public debt by examining whether treated firms, defined as Japanese listed firms with large holdings of maturing corporate bonds, were financially constrained during the 2008 financial crisis. The empirical results from matching estimators show that these firms did not decrease their capital investment expenditures relative to bank-dependent firms. In contrast, their bank loan balances rose sharply without simultaneous increments in borrowing costs. It is also revealed that treated firms with close bank-firm relationships had greater access to bank loans with low borrowing costs when the heterogeneity of the treatment effects is considered. Although firms without such close relationships experienced increases in their borrowing costs, the changes in the investment rates were not statistically different from those of firms with close bank-firm relationships. These empirical results demonstrate that Japanese firms were sufficiently able to substitute bank loans with corporate bonds during the crisis and imply that the Japanese banking sector worked efficiently to replace the public debt market. Given the fact that the majority of bond-issuing firms maintained close bank-firm relationships, the reason that these results are obtained is that the problems of asymmetric information between banks and firms are mitigated through existing bank-firm relationships, even for bond-issuing firms. Existing studies such as Chava and Purnanandam (2011) show that shocks in the banking sector negatively affect the performance of bank-dependent firms. Nevertheless, the results of this study demonstrate that the 2008 shocks to the corporate bond markets were offset by the banking sector, which prevented propagation to the real Japanese economy. The results of this paper also raise additional questions for future research. First, in order to learn a lesson from the financial crisis, empirical analyses must examine the causes of public debt market paralysis and the mechanisms behind the international propagation of shocks. Further, it is important to investigate whether firm activities other than capital investments were affected by this financial shock. In particular, it would be fruitful to examine the exporting activities of treated firms without close bank-firm relationships. Finally, the role of credit lines must be assessed. Firms with lines of credit must have relied on them during the crisis, but lack of data on this prevented this paper from pursuing this topic. Nonetheless, it could be an important research subject to investigate how lines of credit functioned during the crisis period and what kinds of bank-firm relationships were involved.