UC San Diego

Chapter 1 examines the effects of bank-driven terminations of bank-borrower relationships on the borrowers' investments by exploiting a matched dataset of Japanese banks and firms. I find that bank-driven terminations significantly decrease investment when the firms facing termination have difficulty in either establishing new relationships or increasing borrowings within their existing relationships. Such termination effects are larger than those due to credit reduction within continuing relationships and are more pronounced for smaller firms. Our findings coincide with previous literature emphasizing financial frictions in the matching process and the importance of relation-specific assets in credit markets.

Chapter 2 investigates the effects of unconventional monetary policy on bank lending, using a bank-firm matched dataset in Japan from 1999 to 2015 by disentangling conventional and unconventional monetary policy shocks employed by the Bank of Japan over the past 15 years. I find that a rise in the share of the unconventional assets held by the Bank of Japan boosts lending to firms with a lower distance-to-default ratio from banks with a lower liquid assets ratio and higher risk appetite. In contrast to the composition shock, the monetary base shock of increasing the Bank of Japan's balance sheet size does not have heterogeneous effects on bank lending. Furthermore, we find that interest rate cuts stimulate lending to risky firms from banks with a higher leverage ratio.

Chapter 3 contributes to the debate about the the effect of bank loan supply shocks on real economy, using bank lending stance shocks derived from the industry-level Short-term Economic Survey of Enterprises (Tankan) survey data in Japan. The identified bank lending stance shocks enable us to investigate the effect of loan supply shocks on the real economy over the past 30 years in a consistent manner using a structural vector auto regressive model, thereby leading to three main conclusions. First, a negative bank loan supply shock, which means a tightening of banks' lending stance, significantly decreases real GDP growth rates.

However, loan supply shocks were not main driving factors for fluctuations of the real economy; the contribution of bank loan supply shocks to GDP is less than 10%.

Third, I find that the economy with a zero lower bound constraint is more vulnerable to an adverse loan supply shock compared to that without the constraint as predicted by existing theoretical models. In a zero lower bound environment, loan supply shocks contribute to approximately 10% of the GDP fluctuations.