Financial Distress and Industry Structure: An inter-industry approach to the "Lost Decade" in Japan

Author Name OGAWA Kazuo  (Institute of Social and Economic Research, Osaka University) /Elmer STERKEN  (Department of Economics, University of Groningen) /TOKUTSU Ichiro  (Graduate School of Business Administration, Kobe University)
Creation Date/NO. October 2010 10-E-048
Research Project Study Group on Changes in Financial and Industrial Structures
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This paper proposes a novel approach to investigating the propagation mechanism of balance sheet deterioration in financial institutions and firms, by extending the input-output analysis. First, we use input-output tables classified by firm size. Second, we link the input-output table with the balance sheet conditions of financial institutions and firms.

Based on Japanese input-output tables, we find that the lending attitude of financial institutions affected firms' input decision in the late 1990s and the early 2000s. Simulation exercises are conducted to evaluate the effects of changes in the lending attitude toward small firms, as favorable as toward large firms, on sectoral allocations. We find that output was increased for small firms and reduced for large firms. The change in output was non-negligible, about 5.5% of the initial output of each sector. In particular it exceeded 20% in textile, iron and steel and fabricated metal products.