Japanese Banks’ monitoring activities and the performance of borrower firms: 1981–1996
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- Fukao, K., Nishimura, K.G., Sui, QY. et al. IEEP (2005) 2: 337. doi:10.1007/s10368-005-0040-2
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We construct an index measure that quantitatively describes the monitoring activities of Japanese banks. Using micro data on Japanese banks and borrower firms, we examine the effects of bank monitoring on the profitability of borrower firms. We find significant positive effects in the periods 1986–1991 and 1992–1996, although there is no significant effect in the period 1981–1985. We also examine how banks’ monitoring affects borrowers. The results show that the positive effects of banks’ monitoring on borrowers’ profitability are mostly caused by screening effects, not performance-improving effects.