Debt disorganization in Japan

Keiichiro Kobayashi, Masaru Inaba

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

Business transactions shrank in the early 1990s in Japan, and banks rolled over significant amounts of non-performing loans to keep non-viable firms afloat. Why did firms became inactive even though banks continued providing loans? In order to solve this problem, we focus on the nature of debt contracts as a commitment device. By rolling over bad loans, the banks might have destroyed (unintentionally) the trustworthiness of the commitments of the debtors, thereby breeding distrust among firms. The rise of distrust could then have disorganized chains of productions. We conducted an empirical analysis to check this hypothesis. Our empirical results are supportive of this line of thinking, suggesting that the Japanese economy might have suffered from disorganization due to the rollover of bad debts.

Original languageEnglish
Pages (from-to)151-169
Number of pages19
JournalJapan and The World Economy
Volume17
Issue number2
DOIs
Publication statusPublished - 2005 Apr 1

Keywords

  • Complexity
  • Coordination failure
  • Non-performing loans

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

Fingerprint Dive into the research topics of 'Debt disorganization in Japan'. Together they form a unique fingerprint.

  • Cite this