Credit In Japan Research Articles

Effects of Shareholdings on the Relationship between Accounting Quality and Trade Credit: Evidence from Japan

ABSTRACT This study investigates the effects of cross- and stable shareholdings on the relationship between accounting quality and trade credit in Japan. Cross- and stable shareholdings are well-known features of Japanese corporate governance, as a private information-sharing system. The results indicate that the trade credit of customers without either cross- or stable shareholdings increases with accounting quality, and in most cases, such shareholdings weaken the relationship between accounting quality and trade credit. These findings suggest that close ties to cross- and stable shareholders reduce the importance of accounting information through sharing private information. The findings will enhance the understanding of ownership structure’s potential impact. Overall, this study contributes to the literature by demonstrating the role of accounting quality in financing and the factors that reduce this role. In addition, this study highlights policy implications for the regulatory initiatives to unwind cross-shareholdings, which may affect private information sharing. Data Availability: Data are available from sources indicated in the text. JEL Classifications: G34; M41.

Japanese firms drop Moody’s for credit ratings

Two Japanese chemical companies have dropped Moody’s as a rater of their creditworthiness after the US agency downgraded its assessment of their financial stability. The companies, Sumitomo Chemical and DIC, will rely instead on the more favorable ratings of the Japan Credit Rating Agency, the country’s largest ratings firm. Elsewhere, such a move might raise red flags. But stock analysts in Japan see little to worry about because the two companies depend primarily on Japanese funding. The firms would need a US rating if they wanted funding in dollars. The companies—which like all firms pay to be rated—claim that they dropped Moody’s to keep investors calm. “A gap in ratings between Moody’s and Japanese rating companies tends to confuse investors,” a spokesperson from Sumitomo’s investor relations department tells C&EN. “We consider the risk related to a gap in ratings much more serious than the risk of affecting our ability to

The Effect of Corporate Governance on the Relationship between Accounting Quality and Trade Credit: Evidence from Japan

This study investigates the effect of shareholdings on the relationship between accounting quality and trade credit in Japan. It focuses on cross- and stable shareholdings, which are well-known features of Japanese corporate governance, as a private information sharing system. The relationship between cross- and stable shareholdings, accounting quality, and trade credit is tested. The results reveal that trade credit of customers without either cross- or stable shareholdings increases with accounting quality and that such shareholdings weaken the relationship between accounting quality and trade credit. The findings suggest that a close tie to cross- and stable shareholders results in reducing the importance of accounting information through sharing private information.

혼합변수를 갖는 데이터의 분류를 위한 하이브리드 분류기

Mixed data with numeric variables and categorical variables are appearing in many areas such as credit scoring, medical diagnosis and manufacturing products. Most Classification techniques are suitable for each variable type of mixed data. For example, techniques using Euclidean distance are suitable for numerical variables and another techniques using symbolic logic are suitable for categorical variables. In this paper, we propose a hybrid method of classifiers to improve performance of the classification algorithm. Main idea is to deal with the categorical and numerical attributes separately with appropriate techniques. First, a whole data is partitioned into several subsets by applying decision tree only to categorical variables. Next, posterior probability is obtained by applying either k-NN or SVM to numerical variables in each leaf node of decision tree. Six data (Australian credit, German credit, Japan credit, Mammographic mass, churn, bank) of the UCI Machine Learning Repository are used to evaluate performance of the proposed hybrid classifier. Performance of a hybrid k-NN classifier is improved comparing with the k-NN. Performance of a hybrid SVM is slightly better than that of SVM.

SOVEREIGN CREDIT RISK, MACROECONOMIC DYNAMICS, AND FINANCIAL CONTAGION: EVIDENCE FROM JAPAN

We try to understand the nature of Japan's sovereign credit risk by examining the interaction between Japan's sovereign credit default swap (CDS) spreads and its financial indicators of macroeconomic fundamentals. We consider potential contagion from the global financial market and allow for reverse causality between CDS spreads and macroeconomic fundamentals. We find strong evidence of contagion from global stock markets to Japan's credit market when Lehman Brothers collapsed, whereas the European sovereign debt crisis only had temporary effects. We also show that several credit events, such as the 2011 Tohoku earthquake and rating cuts by rating agencies, significantly raised volatility in Japan's sovereign CDS market.

Comment on Peek and Rosengren (2005) 'Unnatural Selection: Perverse Incentives and the Allocation of Credit in Japan'

Peek and Rosengren (2005) suggested the mechanism of “unnatural selection,” where Japanese banks with impaired capital increase credit to low-quality firms because of their motivation to pursue balance sheet cosmetics. In this study, we reexamine this mechanism in terms of the interaction effect in a nonlinear specification of bank lending, using data from 1994 to 1999. We rigorously demonstrate that their estimation results imply that Japanese banks allocated lending from viable firms to unviable ones regardless of the degree of bank capitalization.

Japanese Regulation Policy and Credit Crunch

This paper aims to answer this question: What were the causes of the severe slowdown in bank credit in Japan between 1999 and 2005? We test three credit crunch hypotheses, all together. The empirical results uncover the occurrence of a credit crunch that is attributed to bankers’ precautionary behavior rather than direct regulatory capital worries.

Bank loan availability and trade credit for small businesses during the financial crisis

Abstract Using small business data, we investigate the relationship between bank loan availability and trade credit in Japan during the recent global financial crisis. Previous studies argue that the relationship between trade payables and bank loan availability is negative because trade credit is an inferior financial resource for firms. In addition, firms with better credit availability offer more trade credit to their customers. Specifying the credit guarantee program for small businesses introduced in Japan after October 2008 as an exogenous shock that enhanced credit availability, we find that small businesses increase trade credit (both payables and receivables) if bank loan availability improves. This implies that the relationship between trade payables and bank loans for small businesses is complementary. Furthermore, small businesses with enhanced credit availability offer more trade credit to their customers.

Bayesian dynamic linear modeling for exploring the impact of recent financial crisis on Japan Credit Default Swap market

This paper investigates the effects of recent subprime financial crisis on Japan Credit Default Swap (CDS) market. We first analyze the relationship between the log return series of the reference rates of a CDS contract and the hazard rate. This provides a theoretical foundation for the use of correlation of the log CDS returns as a representation of credit risk correlation. In the dynamic Bayesian linear modeling framework, we consider an algorithm that allow us to obtain dynamic Bayesian updates for the correlation among the reference rates of an underlying CDS contract. Data from the Japan CDS market is analyzed using the proposed methodology. An empirical analyses on the data segmented by different economic environments are carried out. Results indicate that the estimated implied default correlation captures market structure very well and provides useful information for credit risk management.

What explains default risk premium during the financial crisis? Evidence from Japan

As is well documented, subprime mortgage markets carried significant default risk. This paper investigates the relationship between default risk premium, stock market conditions and macroeconomic variables during the financial crisis. Using iTraxx Japan Credit Default Swap (CDS) index spreads covering the period from March 2006 to November 2009, we employ a time-varying dynamic factor model with Markov regime switching to generate regime probabilities for default risk. We analyze the sensitivity of default risk premium changes to stock market conditions and macroeconomic variables by using two-state Markov switching models: a crisis regime sparked by rising loan defaults in the sub-prime mortgage market, and a non-crisis regime. We found strong evidence that the relationship between default risk premium changes, stock market and macroeconomic variables is regime-dependent. Our results suggest that during periods of crisis, CDS indices behave as a higher-risk indicator and become more sensitive to stock market conditions and macroeconomic variables. This paper examines the effects of the financial crisis in explaining the default risk premium. Understanding the determinants of default risk premium is important for financial analysts, economic policy makers and credit risk management.

Rough set and Tabu search based feature selection for credit scoring

Abstract As the credit industry has been growing rapidly, huge number of consumers’ credit data are collected by the credit department of the bank and credit scoring has become a very important issue. Usually, a large amount of redundant information and features are involved in the credit dataset, which leads to lower accuracy and higher complexity of the credit scoring model. So, effective feature selection methods are necessary for credit dataset with huge number of features. In this paper, a novel approach, called FSRT, to feature selection based on rough set and tabu search is proposed. In FSRT, conditional entropy is regarded as the heuristic to search the optimal solutions. The proposed method is introduced to credit scoring and Japan credit dataset in UCI database is selected to demonstrate the competitive performance of the proposed method. Moreover, FSRT shows a superior performance in saving the computational costs and improving classification accuracy.

Does Tax Credit for R & D Induce Additional R & D Investment? : Analysis on the effects of gross R & D credit in Japan

Does Tax Credit for R & D Induce Additional R & D Investment? : Analysis on the effects of gross R & D credit in Japan

Split sovereign ratings and rating migrations in emerging economies

This paper presents evidence on sovereign rating heterogeneity in emerging economies. Split rated sovereigns are prone to be upgraded (downgraded) by the agency from whom a lower (higher) rating exists. The harsher the split ratings between two agencies, the greater the effect on probabilities of future rating changes. Split ratings among Moody's, S&P and Fitch are influential on their rating migrations. The rating dynamics of Capital Intelligence, Japan Credit Rating Agency and Japan Rating & Investment Information are affected by their rating disagreements with the larger agencies. Only Moody's upgrade decisions are influenced by rating differentials with the smaller agencies.

Corporate restructuring in Japan: Who monitors the monitor?

Peek and Rosengren [Peek, J., Rosengren, E., 2005. Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review 95, 1144–1166] showed that, when the bubble economy era ended, regulatory forbearance and perverse incentives allowed Japanese banks to engage extensively in evergreening. This is the first comprehensive study to empirically analyze the economics of private debt restructurings of financially distressed companies in Japan, where the corporate monitoring mechanism is not market based but large-stakeholder based – typically, banks and affiliated companies. These stakeholders are expected to efficiently resolve potential bankruptcy or collapse with better information resulting from long-term relationships with the distressed firms. Our study, however, finds that private restructurings led by them failed because of delays in implementing fundamental solutions. Forbearance in addressing the needs of distressed firms demonstrates the weakness of such stakeholders in instituting discipline, hence the need for a system to “monitor the monitor”.

Re-Regulating Unsecured Consumer Credit in Japan: Over-Indebted Borrowers, the Supreme Court, and New Legislation

This paper begins to fill a gaping void in the English-language literature on a pressing socio-economic problem in Japan - the rise in unsecured consumer lending particularly since the early 1990s, followed by a partial fall due primarily to stricter enforcement recently of interest rate restrictions. Parts I and II reveal broad parallels with consumer over-indebtedness and lenders' business models in other post-industrial capitalist societies, although for example cash loans remain distinctively more common in Japan than credit card based lending. Part III outlines the statutory regime until 2005, and the caps and other reforms introduced in late 2006 that are having a major impact on Japan's consumer credit providers - as well as other financial institutions. The reforms were pushed along by judgments from Japan's highest Court, which has deployed sometimes purposive and sometimes literalist interpretations to benefit consumers. Such phenomena pose challenges for certain longstanding paradigms advanced by commentators outside Japan to explain the country's law and society. Those perspectives and several others are outlined in Part IV, the Interim Conclusions, along with other implications for consumer law generally, which are pursued in a companion paper.

Explaining cosmetic compliance with international regulatory regimes: The implementation of the Basle Accord in Japan, 1998–2003

A central theme of much recent international political economy (IPE) scholarship has been the question of what determines compliance with international regulatory regimes.1 The contemporary debate ...

Reactions of Japanese markets to changes in credit ratings by global and local agencies

We examine data from the mid-1980s to 2003 to investigate whether stock prices set on the Tokyo Stock Exchange for Japanese firms react more strongly to changes in credit ratings of global rating agencies than of local agencies. This offers a strong test of relative influence of the two groups of rating agencies. We hypothesize that global raters will have more influence, but given that the two global agencies, Moody’s and Standard and Poors, are headquartered in the United States, analysis of stocks of Japanese firms listed on US exchanges would confound the results to the extent there is a home bias for raters. We find that global agencies are more influential than the two major local raters, Japan Rating and Investment Information and Japan Credit Rating Agency, for rating downgrades. Thus for credit downgrades, global raters are more influential than local ones even in the local market. Consistent with previous research, we find that upgrades are benign events, and this holds true for global as well as local agencies.

Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan

We examine the misallocation of credit in Japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms. Firms are more likely to receive additional bank credit if they are in poor financial condition, because troubled Japanese banks have an incentive to allocate credit to severely impaired borrowers in order to avoid the realization of losses on their own balance sheets. This “evergreening” behavior is more prevalent among banks that have reported capital ratios close to the required minimum, and is compounded by the incentives arising from extensive corporate affiliations.

The effects of the Basle accord on bank credit: the case of Japan

This paper has documented the empirical evidence that the Basle Accord had significant effects on bank credit in Japan. The Accord reduced the ratio of the credit increase to the total asset by 0.09-0.24% for banks with the international standard, and by 0.06-0.21% for those with the domestic standard, respectively. According to the Fixed Effects Model estimates, the impacts of the regulation are in between 0.12% and 0.13% for those banks with the international standard. These estimates are smaller than the corresponding estimate with aggregate time series data, 0.40%.

Japan, the Reluctant Reformer

At the end of last year, Japan's citizens, having struggled for years with a bitter recession, were hit with still more bad news: another arbiter of international opinion had forecast their country's imminent decline. In its Global Trends 2015 report, the cia predicted that, in view of China's ongoing rise, Japan will have difficulty maintaining its current position as the world's third largest economy [after the United States and Europe]. Just a few months earlier, Japanese bonds had been demoted for the second consecutive time by Moody's, the U.S. credit-rating agency. After long enjoying Moody s highest rating, Japan's credit was now judged to be as risky as Portugal's. Both stories made big news in Japan, as did the underlying problems that provoked such negative appraisals in the first place. Yet despite the widespread attention these economic woes received, the Japanese public remained strangely quiescent. This resignation has become a typical response to the ailing economy. Voters keep returning the long-dominant Liberal Democratic Party (ldp) to power, although it has presided over a decade of stagnant growth and sunk the government deep into debt. Japanese investors accept interest rates of less than one percent on their savings accounts, labor unions swallow pay cuts,