Working Paper: NBER ID: w13005
Authors: Hirofumi Uchida; Gregory Fudell; Wako Watanabe
Abstract: Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering relationship lending. The most comprehensive analysis of this view found using U.S. data that smaller SMEs borrow from smaller banks and smaller banks have stronger relationships with their borrowers (Berger, Miller, Petersen, Rajan, and Stein 2005) (BMPRS). We employ essentially the same methodology as BMPRS on a unique Japanese data set and obtained findings that are quite interesting from an international comparison point of view. We found like BMPRS that larger firms tend to borrow from larger banks. However, unlike BMPRS we did not find that this was because larger firms are more transparent. Together these results imply that large banks do not necessarily have a comparative advantage in extending transactions-based lending. We also found like BMPRS that smaller banks have strong relationships with their borrowers. However, we find that banking relationships in the U.S. and Japan are strong in somewhat different dimensions. Our paper clarifies these and other interesting similarities and differences between the U.S. and Japan.
Keywords: bank size; lending relationships; small and medium enterprises; Japan
JEL Codes: D82; D83; G21; G32; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger firms (L25) | transparency of larger firms (G38) |
| bank size (G21) | duration of relationships (C41) |
| availability of audited financial statements (M42) | choice of bank size (G21) |
| comparative advantages of small banks (G21) | lending practices (G21) |
| larger firms (L25) | larger banks (G21) |
| smaller banks (G21) | stronger relationships with borrowers (G51) |