Credit Reallocation, Firm Size, and Productivity

         
Author Name SAKAI Koji (Kyoto Sangyo University) / UESUGI Iichiro (Faculty Fellow, RIETI)
Creation Date/NO. February 2019 19-E-004
Research Project East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances
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Abstract

We examine the characteristics of credit reallocation and its relationship with productivity by employing a comprehensive dataset of Japanese firms of all sizes covering the period 1980-2014. We find the following: (1) Credit reallocation across firms is not only substantially larger than the net change in credit but also larger than the reallocation of labor and physical capital. (2) Credit destruction fluctuates more than credit creation. (3) Credit reallocation and net credit changes are procyclical for large firms but they are not significantly correlated with the business cycle for SMEs. (4) Credit reallocation is efficiency-enhancing in general in that the interest-bearing debt of more productive firms increased, while that of less productive firms decreased; however, credit reallocation turned efficiency-reducing during the 1990s, when the Japanese economy and financial markets experienced a series of adverse shocks.

This is the English version of the Japanese Discussion Paper (15-J-035) with some additional information and changes.