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Abstract

Vol. 66, No. 3, pp. 224-241 (2015)

“Collateral Value and Financing Constraint: Analysis using Corporate Data after the Great Tohoku Earthquake”
Hirofumi Uchida (Graduate School of Business Administration, Kobe University), Daisuke Miyakawa (ICS, Hitotsubashi University), Iichiro Uesugi (Institute of Economic Research, Hitotsubashi University), Arito Ono (Faculty of Commerce, Chuo University), Kaoru Hosono (Faculty of Economics, Gakushuin University)

The aim of this paper is to study the collateral channel which predicts that the reduction in the value of firms' physical assets leads to their smaller debt capacity, hence to borrowing constraints. As a unique feature of our approach, we employ a quasi-natural experiment approach and focus on a purely exogenous shock on firms’ collateral values stemming from the damages associated with the Great Tohoku Earthquake, which enables us to identify the collateral channel in a much cleaner manner than conventional approaches. Our estimates show that firms that suffered from damages on their tangible fixed assets were more likely to face difficulty in borrowing from financial institutions. This finding supports the existence of the collateral channel.