Does the Policy Lending of a Government Financial Institution to Mitigate the Credit Crunch Improve Firm Performance? Evidence from loan level data in Japan

Using the data of individual loan contracts extended by the government-owned Japan Finance Corporation for Small and Medium Enterprise (JASME), we examine how the JASME's lending from December 1997 through March 1999 that aimed at mitigating the adverse effects of the credit crunch affected firm performance. We find that the return on assets (ROA) and earnings before income, tax, depreciation and amortization (EBITDA) to total assets ratio are negative a few years after the loans are made, but that this negative effect dissipates afterward.