NBER Publications by Kimie Harada

In the late 1990s, several large Japanese banks failed for the first time in its postwar history. As the financial environment was deteriorating further, several remaining banks decided to merge among themselves, presumably, to make their operations more efficient to avoid failures. This paper defines, calculates and analyzes the distance to default (DD), a concept of credit risk in corporate finance, of Japanese large banks. The DD helps us to answer a question whether mergers in the late 1990s and 2000s made the merged banks financially more robust as intended. The novelty of the paper is to develop a method of analyzing the DD for banks that experience a merger, and to apply the method to the Japanese banking data. Our findings include: (1) A merged bank fundamentally inherits financial...