From 1990 to 1993, the typical firm on the Tokyo Stock Exchange lost more than half its value and banks experienced severe adverse shocks. We show that firms whose debt had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993. This effect is statistically as well as economically significant and holds when we control for a variety of variables that affect firm performance during this period of time. We find that firms that were more bank-dependent also invested less during this period than other firms. We also show that exogenous shocks to banks during the negotiations leading to the Basle Accord affected bank borrowers significantly.
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