Forbearance Lending: The Case of Japanese Firms

Abstract

After the collapse of the asset price bubble, Japanese banks are said to refinance firms, even in cases where there is little prospect of firms repaying the loans extended. This phenomenon is known as " forbearance lending." We find the evidence which is consistent with the view that forbearance lending certainly took place, and that it suppressed the profitability of inefficient nonmanufacturing firms. First, contrary to the usual expectation, we find that outstanding loans were apt to increase to a firm whose debt-asset ratio exceeded a certain level: after the bubble burst, this nonlinear relationship between loans and debt-asset ratios became evident for nonmanufacturing firms, especially those in the construction and real estate industries. Furthermore, we also find that an increase in loans to highly indebted firms in these industries lowered their profitability.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 109 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.