| Abstract: |
We investigate the effects of bank distress on productivity of borrowing firms
using micro data on listed companies in Japanese manufacturing industry during
the 1990s. We find some evidence suggesting that deterioration in financial
health of banks, like a decline in capital-asset-ratio, decreased productivity
of their borrowers during the period of FY1994-1996. Although huge
nonperforming loans had been a serious problem in Japanese economy since the
collapse of asset prices bubble in 1991, resolution of the problem was
postponed during the early 1990s. The Japanese economy plunged into serious
banking crisis from 1997 to 1999. Our finding is consistent with the
hypothesis that forbearance lending by banks that was prevalent during the
early 1990s lowered the aggregate productivity of the economy. |