Abstract
In this paper, we examine the nature of the shocks that hit the small- and medium-sized enterprises (SMEs) in Japan during the global financial crisis that occurred in the wake of the massive number of non-performing subprime loans in the U.S. We examine how the SMEs responded to the shocks, using the unique surveys that were conducted by the Research Institute of the Economy, Trade and Industry in 2008 and 2009. The shocks were identified as demand, supply, and financial shocks. The demand shock was the most prevalent of the shocks, while the financial shock was least frequent. The SMEs took a spectrum of measures against the demand shock by seeking help from suppliers and financial institutions. We find that the measures taken by the SMEs crucially depended on the bank–firm relationship as well as the customer–supplier relationship. The bank-dependent SMEs asked their closely-affiliated financial institutions for help, while the SMEs less dependent on financial institutions sought help primarily from their suppliers. A long customer–supplier relationship plays an important role in mitigating the supply shock.
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Notes
By contrast, longer relationships could create an informational monopoly, and hold the SMEs up, not by providing additional support but by charging higher costs because the SMEs have difficulty in switching to new supporters.
See, e.g., Albertazzi and Marchetti (2010), Blaes (2011), Bonaccorsi di Patti and Sette (2012), Cornett et al. (2011), Gambacorta and Marques-lbanez (2011), Del Giovane et al. (2011), and Ivashina and Scharfstein (2010) for empirical investigations of bank loan supply in the recent global financial crisis.
See Uesugi et al. (2009) for a comprehensive summary of the survey results.
Question 28 in the 2008 survey asks for the respondent firm name of the firm’s main and second banks (financial institutions with the second-largest loan outstanding) as well as for the length of the business relationship with those banks.
Subscript i indicates i-th firm.
To ensure the robustness of our results, we removed from our sample observations with extreme values that are defined as those for which the variables other than binary variables have a value >4 standard deviations from the average value.
One might argue that multivariate probit is an appropriate estimation method, taking into account multiple reactions to a certain shock by the firms. As a preliminary step, we estimate the response functions vis-à-vis customers and suppliers jointly by bivariate probit. It turns out that the estimation results by bivariate probit were essentially the same as those by probit, so that we adopt probit in the subsequent analysis.
The marginal effects for the third and fourth group are available from the authors upon request.
As an alternative measure of the bank–firm relationship, we classified the firms into four groups of firms, based on the loan ratio of the main and second banks. We then repeated the estimation exercise above for each firm group. We could not detect any association in the pattern of the measures taken by the SMEs in response to shocks with the bank–firm relationship defined by the loan ratio. The full estimation results are available from the authors upon request.
In other words, we estimate the linear probability model in the first step.
The MAINBDEPEND variable is a dummy variable that equals one when the respondent firm asks its main bank for help in the event of a temporary shortage of funds, and zero otherwise. The SUPPLYMDEPEND variable is a dummy variable that equals one when the respondent firm asks its main supplier for help in the event of a temporary shortage of funds, and zero otherwise. These two variables are constructed from question 13 of the 2008 survey. The MONOP1 variable is a dummy variable that equals one when the respondent purchases intermediate goods from only their main supplier, and zero otherwise. This variable is constructed from question 10 of the 2008 survey. The MONOP2 variable is a dummy variable that equals one when the supplier sells intermediate goods to only the respondent firm, and zero otherwise. This variable is constructed from question 11 of the 2008 survey. The OWNERSHIP variable is taken from question 2 of the 2008 survey. The SUPPLIERMEET variable comes from question 8 of the 2008 survey. The variables BANKDISTANCE1 and BANKDISTANCE2 are obtained from question 28 of the 2008 survey. The variables of SUPPLMSIZE1 to SUPSIZE5 are available in question 9 of the 2009 survey.
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Acknowledgments
The authors are grateful to an anonymous referee, Tatsuhiko Aoki, Hikaru Fukanuma, Masaharu Hanazaki, Kaoru Hosono, Daisuke Miyakawa, Tadanobu Nemoto, Arito Ono, Masayuki Otaki, Yoshiro Tsutsui, Hirofumi Uchida, Iichiro Uesugi, Tsutomu Watanabe, Wako Watanabe, and participants of the seminars at Development Bank of Japan, Research Institute of Economy, Trade and Industry and Regional Finance Conference for extremely valuable comments and suggestions. This research was financially supported by Grant-in-Aid for Scientific Research (#22330068) from the Japanese Ministry of Education, Culture, Sports, Science and Technology in 2010. Any remaining errors are the sole responsibility of the authors.
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Ogawa, K., Tanaka, T. The global financial crisis and small- and medium-sized enterprises in Japan: how did they cope with the crisis?. Small Bus Econ 41, 401–417 (2013). https://doi.org/10.1007/s11187-012-9434-z
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DOI: https://doi.org/10.1007/s11187-012-9434-z