Yukiko Umeno Saito

Network-Motivated Lending Decisions

We demonstrate theoretically and empirically that monopolistic or collusive banks will keep lending to a loss-making firm at an interest rate lower than the prime rate if the firm is located in an influential position in an inter-firm supply network. An influential firm generates a positive externality, and its exit damages sales in the supply network. To internalize this externality, the banks may forbear on debt collection and/or bail out such influential firms when the cost to support the loss-making influential company can be recouped by imposing high interest rates on less influential companies. The analytical model shows that such forbearance can improve welfare. Our empirical study, performed using a unique dataset containing information about inter-firm transactions, provides evidence for such network-motivated lending decisions. In particular, this effect is observed more clearly at less credit-worthy firms whose main bank is a regional bank. Notably, we observe that such banks are often dominant lenders in the local loan market, and most of their clientele do not have direct access to the stock and bond markets.

Geographical Spread of Interfirm Transaction Networks and the Great East Japan Earthquake

This chapter examines how the impact of the Great East Japan Earthquake spread geographically to unaffected areas through interfirm transaction networks. Previous studies on transaction networks revealed small-world structure and geographical proximity, which have conflicting implications for the geographical impact of the earthquake. Using interfirm transaction data from approximately 800,000 firms, it is examined how firms in physically unaffected areas are linked with those in the affected areas. It is found that only 3 % of firms in unaffected areas have direct transaction links with those in the affected areas. On the other hand, the share increases to 40–60 % if indirectly linked transaction partners (i.e. partners of partners) are taken into account. Further, it is shown that it is a small number hub firms with interfirm links spanning larger distances that are responsible for linking more local networks in different regions and hence for geographically spreading the economic impact of the earthquake.

Characteristic market behaviors caused by intervention in a foreign exchange market

In foreign exchange markets monotonic rate changes can be observed in time scale of order of an hour on the days that governmental interventions took place. We estimate the starting time of an intervention using this characteristic behavior of the exchange rates. We find that big amount of interventions can shift the averaged rate about 1 yen per 1 dollar in an hour, and the rate change distribution becomes asymmetric for a few hours.

Production Networks, Geography, and Firm Performance

This paper examines the importance of buyer-supplier relationships for firm performance. We develop a model in which firms outsource tasks and search for suppliers. Lower search and outsourcing costs lead firms to search more and find better suppliers, which in turn drives down marginal costs. We test the theory by exploiting the opening of a high-speed train line in Japan, which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive data set on firms’ buyer-seller linkages, we find significant improvements in firm performance as well as creation of buyer-seller links, consistent with the model.

Strong customer/supplier relationships: A key to enterprise growth in Japan

Based on econometric analysis of data drawn from a large business database and on interviews with eight HGSMEs, this chapter examines the interactions between firms’ business relationships (with both suppliers and customers) and growth performance (in terms of sales) in Japan. The authors found that three dimensions in transaction relationships have a positive effect on enterprise growth: the number of relationships; relationships with large or fast-growing firms; and geographic proximity to suppliers and customers. Both, the results from the econometric analysis and the findings derived from the case studies were consistent.

Are Firm Growth Rates Random? Evidence from Japanese Small Firms

Anecdotal evidences suggest that a small number of firms continue to win until they finally acquire a big presence and monopolistic power in a market. To see whether such “winner-take-all” story is true or not, we look at the persistence of growth rates for Japanese small firms. Using a unique dataset covering half a million firms in each year of 1995–2003, we find the following. First, scale variables, such as total asset and sales, exhibit a divergence property: firms that have experienced positive growth in the preceding years are more likely to achieve positive growth again. Second, other variables that are more or less related to firm profitability exhibit a convergence property: firms with positive growth in the past are less likely to achieve positive growth again. These two evidences indicate that firm growth rates are not random but history dependent.