This paper investigates the effect of banks' lending capacity on firms' capital investment. To overcome the difficulties in identifying purely exogenous shocks to firms' bank financing, we utilize the natural experiment provided by the Great Hanshin-Awaji (Kobe) Earthquake in 1995. Using a unique firm-level dataset that allows us to identify firms and banks in the earthquake-affected area, together with information on bank-firm relationships, we find that the investment ratio of firms located outside of the earthquake-affected area but with their main banks inside the area was lower than that of firms that were both located and had their main banks outside of the area. This result implies that the weakened lending capacity of damaged banks exacerbated the borrowing constraints on the investment of their undamaged client firms. We also find that the negative impact is robust for two alternative measures of bank damage: that to the bank headquarters and that to the branch network. However, the impacts of the two are different in timing; while that of the former emerged immediately after the earthquake, the latter emerged with a one-year lag.

Firms have exited the market since the start of the COVID-19 pandemic. To evaluate the number of firms exiting the market and their exit rate, we construct a simple model, in which firms optimally choose stopping time for their exit. We estimate the model using firm-level data on firm exits before the pandemic. Subsequently, using recent survey data on firm sales growth, we simulate potential firm exits during the pandemic under the condition that the institutional background, represented by activities such as bankruptcy procedures and government rescue plans, did not change the exit option value. Our main findings are as follows. First, we find sizable heterogeneity with respect to the number and rate of firm exits across industries and regions. Second, in aggregate, the pandemic potentially increased firm exits by around 20% compared to the previous year under the assumption that the recent reduction in firm sales is temporary and, thus, partially incorporated into firms' expectations for future trend sales growth. In two extreme cases in which the recent sales reduction has a full or no impact on firms' expectations for future sales, firm exits increased by 110% and 10%, respectively. Third, these increases are mainly due to the decrease in the expected sales growth rate, rather than the increase in uncertainty. Finally, we quantify the hypothetical amount of government subsidies needed to prevent excess increases in potential firm exits, which is around 10 -3 of Japan's GDP.

This paper examines the determinants of firm survival in export markets by explicitly taking into account the impact of firms' previous export market experience and their product differentiation. Utilizing a 16-year panel data set for Japanese manufacturing firms, we employ panel probit estimation to examine the likelihood of exit from export markets. The results of our estimations show, first, that the exit probability from export markets decreased over the export duration. Second, the probability of exiting from export markets tended to be lower when firms were more R&D intensive both prior to and after starting exporting. The first result implies that exporting experience plays an important role in firms' survival in export markets. Our second result implies that firms producing differentiated products likely have a greater incentive to make upfront investments to start exporting, and these investments, in turn, enable such firms to survive in export markets for a longer period. JEL Classification Numbers: F14, C41.

TOMOHIKO INUI, KEIKO ITO and DAISUKE MIYAKAWAThis paper examines how firms' decision to start exporting is affected by the availability of information on export markets. Unlike existing studies that focus on information sharing among firms, we are interested in the information provided by firms' main bank. Specifically, using a unique data set containing information on both Japanese firms' export activities and the experience of their main bank (i.e., their top lender bank) in transacting with other exporting firms, we examine whether main banks act as a conduit of information on export markets. We find that information spillovers through main banks positively affect client firms' decision to start exporting (extensive margin), implying that information on foreign markets provided by banks substantially reduces the fixed entry cost of exporting. On the other hand, we do not find any evidence that information provided by banks has an effect on the export volume or on the growth rate of exports (intensive margin). Our results highlight that channels of information spillovers other than those examined in the literature so far may be of considerable importance. (JEL F10, F14, G21)

In this paper, we investigate whether a natural selection mechanism works for firm exit. By using data of firms after a devastating earthquake, the Great Tohoku Earthquake, we examine the impact of firm efficiency on firm exit both inside and outside the earthquake-affected areas. We find evidence suggesting that more efficeint firms are less likely to exit both inside and outside the affected areas, which supports the natural selection mechanism. However, we also find that the mechanism is weaker for those firms whose main banks were damaged by the earthquake, which suggests that damage to banks weakens the natural selection mechanism. We also apply the same methodology to the case of the Great Hanshin-Awaji Earthquake, and again find that the natural selection mechanism works both inside and outside the affected areas. However, no significant impact of bank damage is found on the exit probability of a firm.