A new look at bank-firm relationships and the use of collateral in Japan: Evidence from Teikoku databank data

Abstract

Employing a unique micro dataset on the financial relationships between Japanese firms and their main banks and the use of collateral in their debt financing, this chapter provides a detailed account of the current landscape of business financing in Japan. The findings can be summarized as follows. First, main bank relationships are stable for most firms: less than 1 % of firm switch their main bank in any particular year, although more than 80 % of firms have established relationships with multiple banks. Second, main bank relationships are stronger in terms of deposit transactions than in terms of borrowing: the share of deposits with the main bank in the total amount of deposits is larger than the share of the amount borrowed from the main bank in the total amount of borrowing outstanding. Third, the most frequently pledged type of collateral is real estate property. And fourth, more than 30 % of real estate properties are used as collateral for multiple secured loans, suggesting that the use of junior liens is quite common in Japan.