Discussion of The Decline in Bank- Led Corporate Restructuring in - - PowerPoint PPT Presentation

Discussion of “The Decline in Bank- Led Corporate Restructuring in Japan: 1981-2010” by Hoshi, Koibuchi and Schaede

Masami Imai Wesleyan University Japan Economic Seminar February 16, 2018

What This Paper Does

• Use the firm-level accounting data to identify distressed firms from

1981-2010 in Japan

• In addition, perform newspaper search to identify firms that

underwent corporate restructuring

• Putting together these two pieces of information to:
• Describe the evolution of corporate restructuring over three decades
• Measure the economic impact of corporate restructuring

Results

• The incident of corporate restructuring (relative to that of financial

distress) declined over time

• Distressed firms were less likely to undergo restructuring during the

1990s and thereafter, compared to the 1980s

• Corporate restructuring seems to have been effective as it involved

the restructuring of loans along with real adjustment in employment and firm assets

• The paper also present some evidence that restructuring, once

completed, had some positive effects on firm performance

• But evidence here is less clear….

Data on Restructuring

• Very unique
• I am not aware of any data like these for Japan (or any other countries)
• It is an extremely labor-intensive task
• Newspaper search for Saiken
• In addition, the authors read through each piece to determine whether a firm’s main banks

was involved, etc.

• Went through through each page of Kaisha Shikoho/Kigyo Keiretsu Soran to

ensure that the Saiken data are complete

• The completed data: 30 years of data from 1981-2010 on 3772 unique firms
• 950 episodes of Saiken for 517 firms
• 929 identified in newspaper search
• It goes without saying that they put together a valuable data set that shines an

important light on the evolution of corporate governance in Japan

Four Waves of Financial Ditress/Saiken Incidents

• The first wave when the yen appreciated

sharply in the mid 1980s

• The second wave when the bubble collapsed

in the early 1990s

• The third wave during the financial crisis (the

late 1990s).

• It was a large shock as indicated by a sharp

increase in the number of distressed firms

• But, we do not see a lot of action in Saiken
• The fourth wave during the 2008 global

economic crisis

• Another large negative shock, but while

distressed firms increased, Saiken firms declined!

• Macroeconomic shocks alone cannot explain

these diverging patterns!

We have seen a similar graph in Caballero, Hoshi, and Kashyap (AER 2008)…..

• Banks subsidized firms during the period
• f negative macroeconomic shocks
• The endaka shock in the mid 1980s
• The collapse of asset prices in the early

1990s)

• Banks’ subsidies seem more permanent

in the second wave, despite fluctuating macroeconomic conditions

• A part of this is due to the persistent

underperformance of the Japanese economy,

• But, there is more to the story as the

incident of corporate restructuring declined, relative to financial distress, at the same time

Questions/Comments

• Main banks have weaker incentives to lead restructuring efforts as their

financial stakes in their client firms are not as significant as before

• The paper shows some evidence of this as the probability of Saiken is

related positively to main bank dependence

• How about the bank’s incentive to hide non-performing loans?
• Any differences between firms whose main banks were nearly insolvent

and those whose main banks were relatively healthy?

• Incorporate the data on bank health to uncover diverging patterns

between two groups

• Maybe, the data series on financial distress and Saiken co-moved more tightly for

firms whose main banks are relatively healthy

Real Economic Impact of Saiken

• Tough to estimate the real economic impact of corporate restructuring,

econometrically

• Selection issues
• Why some firms restructured while others did not?
• Positive selection or negative selection?
• Hard to deal with…
• In addition, control group here is a group of similar firms that did not undergo

Saiken

• Once fully recovered, Saiken firms probably did not receive subsidized loans while zombie

firms might have continued to receive them, which, in turn, allowed them to hoard labor and capital

• Measuring firm performance with TFP growth might make the effects of

restructuring clearer

• Saiken firms produce more output with less input while zombie firms produce just as much

(or more) but they use a lot more inputs

Make the Data on Saiken Longer

• It will be interesting to examine what it looked like in the 60s and 70s

when financial regulation was tighter

• Of course, it will be also interesting to see whether the reform of

bankruptcy law had any positive impacts on the incident of Saiken in more recent time period