During this decade the structure of corporate finance in Japan has
changed dramatically. Japanese firms that once used bank debt as their prime
source of financing now rely more heavily on the public capital markets. This
trend was facilitated by the substantial deregulation of the Japanese capital
markets. In an earlier paper (Moshi, Kashyap, and Scharfstein 1988). we
demonstrated that investment by firms with close bank relationships appears to
be less liquidity constrained than investment by firms without close bank
ties. We interpreted this finding as evidence that bank ties tend to mitigate
information problems in the capital market. This paper tracks the investment
behavior of firms that have recently weakened their bank ties in favor of
greater reliance on the bond market. The results suggest that these firms are
now more liquidity constrained. The paper concludes with a discussion of why
firms would loosen their bank ties in light of these liquidity costs.
*Published:
Information, Capital Markets, and Investment, (ed)Glenn Hubbard, UCP, 1991, pp. 105- 126
Hoshi, Takeo, Anil Kashyap and David Scharfstein. "Corporate Structure, Liquidity, And Investment: Evidence From Japanese Industrial Groups," Quarterly Journal of Economics, 1991, v106(1), 33-60.
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