TY  - JOUR
AU  - Peek,Joe
AU  - Rosengren,Eric S.
TI  - Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9643
PY  - 2003
Y2  - April 2003
UR  - http://www.nber.org/papers/w9643
L1  - http://www.nber.org/papers/w9643.pdf
N1  - Author contact info:
Joe Peek
E-Mail: joe.peek@bos.frb.org

Eric Rosengren
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston, MA 02106
Tel: 617/973-3090
E-Mail: eric.rosengren@bos.frb.org
AB  - This study examines the misallocation of credit in Japan associated with the perverse incentives of banks to provide additional credit to the weakest firms. Firms are far more likely to receive additional credit if they are in poor financial condition, and these firms continue to perform poorly after receiving additional bank financing. Troubled Japanese banks allocate credit to severely impaired borrowers primarily to avoid the realization of losses on their own balance sheets. This problem is compounded by extensive corporate affiliations, which provide a further incentive for banks to allocate scarce credit based on considerations other than prudent credit risk analysis.
ER  -