NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bank Ties and Bond Market Access: Evidence on Investment-Cash Flow Sensitivity in Japan

Patrick McGuire

NBER Working Paper No. 9644
Issued in April 2003
NBER Program(s):   CF   EFG

The banking literature has established that banks can alleviate information asymmetries between lenders and borrowers, while the Q literature has used cash flow sensitivity analysis to test whether financing constraints hinder investment. This paper investigates whether bank ties in Japan were costly for mature and healthy firms in the 1980's and 1990's, and whether banks continued to facilitate investment once non-bank financing options became available. Using the explicit bond issuing criteria to solve the endogenous firm-sorting problem, I measure the investment-cash flow sensitivity of Japanese firms, and find it lowest for those firms known to have faced bond market constraints. I then find that the spread in sensitivity was much larger for main bank client firms, once bond market access is controlled for. This result, coupled with results on the relative profitability and bond activity of bank-affiliated firms, is consistent with banks capturing the net benefits of relationship lending during the period of bond market deregulation.

download in pdf format
   (709 K)

email paper

This paper is available as PDF (709 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9644

Published: Patrick M. McGuire, 2003. "Bank ties and bond market access : evidence on investment-cash flow sensitivity in Japan," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 216-241.

Users who downloaded this paper also downloaded these:
Brander and Spencer w1464 Export Subsidies and International Market Share Rivalry
Bernanke, Gertler, and Gilchrist w6455 The Financial Accelerator in a Quantitative Business Cycle Framework
Aizenman and Marion w5841 Volatility and the Investment Response
Eichengreen and Luengnaruemitchai w10576 Why Doesn't Asia Have Bigger Bond Markets?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us