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Lending to Unhealthy Firms in Japan During the Lost Decade: Distinguishing between Technical and Financial Health

Suparna Chakraborty; Joe Peek

Title:
Lending to Unhealthy Firms in Japan During the Lost Decade: Distinguishing between Technical and Financial Health
Author(s):
Chakraborty, Suparna
Peek, Joe
Date:
Type:
Reports
Department(s):
Center on Japanese Economy and Business
Persistent URL:
Series:
Center on Japanese Economy and Business Working Papers
Part Number:
357
Geographic Area:
Japan
Publisher:
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Publisher Location:
New York
Abstract:
We investigate the misallocation of credit in Japan associated with banks’ evergreening loans, distinguishing between two types of firm distress: (perhaps temporary) financial distress and technical distress, which reflects weak operational capabilities, as indicated by low total factor productivity. We show that previous evidence related to firms’ financial health is problematic due to the mixing of loan‐demand and loan‐supply effects. Using a direct measure of operational health, we provide unambiguous, direct evidence of evergreening behavior, as well as confirming evidence based on the relative impacts on subsequent firm viability of loans by bank types with different incentives to evergreen loans.
Subject(s):
Loans
Financial crises
Industrial productivity
Finance
Economics
Item views
167
Metadata:
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Suggested Citation:
Suparna Chakraborty, Joe Peek, , Lending to Unhealthy Firms in Japan During the Lost Decade: Distinguishing between Technical and Financial Health, Columbia University Academic Commons, .

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