Bank relationships and firm performance: Evidence from selected Japanese firms in the electrical machinery industry

Author Name TSURU Kotaro  (Senior Fellow)
Creation Date/NO. December 2001 01-E-004
Download / Links


By using a sample of selected Japanese companies in the electrical machinery industry, we examine bank relationships and firm performance. We find weak evidence that firms with stronger ties with banks might have had higher profitability in the late 1970s. This relationship was more significant among firms that had no access to the public bond market or that were not affiliated with six large corporate groups. These firms with strong bank relationships, however, clearly did worse in the late 1990s. We also find that "monitoring benefits" seem to have disappeared by the late 1990s, since firms with higher growth potential (presumably a feature calling for close bank monitoring), tended to have lower bank dependence in recent years. These various changes in the influence of banking relationships may be associated with the maturity of these relationships, the financial liberalisation of the 1980s and the bust of the bubble economy in the early 1990s. We also find that firms whose main bank was weakly capitalised did worse in the late 1990s.