CRD Study Group

2004.08: First CRD study conference

On August 26, 2004, the first CRD study conference invited as lecturers Professor Hideaki Aoyama of the Graduate School of Mathematics, Kyoto University, and Associate Professor Satoshi Yamashita of the Institute of Statistical Mathematics, who are both advisors to CRD Association. Professor Yamashita reported his study using CRD data, titled "Phenomenology of the Growth and Change of a Corporation, from Large Corporations to SMEs." He analyzed a large volume of CRD data from the viewpoint of econophysics, a new branch of science, and found out special characters of small businesses. Associate Professor Yamashita spoke on "Estimating Correlation Between LGD and Credit by Using a Reduced Form" and reported the estimated loss ratio at the bankruptcy. Estimating loss given default (LGD) was said to be very complicated before Associate Professor Yamashita achieved great success in his estimation method.

2005.06: Second CRD study conference

On June 1, 2005, the second CRD study meeting invited as lecturers Professor Tsutomu Watanabe of the Institute of Economic Research, Hitotsubashi University, and Professor Xu Peng of the Faculty of Economics, Hosei University. The reports by both professors were based on results from large volumes of data on SMEs, accumulated in CRD Association.

Professor Watanabe made a presentation on "The Pricing of Loans to SMEs" with Professor Kaoru Hosono of the Faculty of Economics, Gakushuin University, and Mitsuru Sawada, lecturer at the Faculty of Economics, Nagoya Gakuin University. Mr. Sawada and Profs, Hosono and Watanabe jointly analyzed whether the pricing (setting of the interest rate) at Japanese financial institutions was inappropriate. By analyzing the CRD data, they found out that the Japanese financial institutions discounted the future performance of the debtor companies, and verified the "equalization hypothesis" that the interest rate is not increased even if the performances of debtor companies temporarily deteriorate. They did not find facts supporting the "zombie hypothesis" that Japanese financial institutions sought to sustain themselves by offering low interest rates to unpromising companies. They concluded that financial institutions set interest rates in a reasonable manner. As of June 2005, the paper was yet to be released, but its outline was introduced in detail in a treatise "Is Corporate Financing in Japan Inefficient? Case of Loans to SMEs," by Iichiro Uesugi of the Research Institute of Economy, Trade and Industry (RIETI)" (downloadable from the website of the Research Institute of Economy, Trade and Industry:

Professor Peng presented "The Survival Period of Companies with Excess Liabilities and Creditors' Behavior" (joint study with Daisuke Tsuruta, at the National Graduate Institute for Policy Studies and part-time fellow at CRD Association). They analyzed the probability of legal bankruptcy of SMEs in management crisis (excess liabilities and deficits for two or more fiscal years), focusing on differences in behaviors between banks and their transacting companies. As claims to loans are generally unsecured, banks are motivated to recover loans to a company in crisis as quickly as possible. Analysis of CRD data shows that the probability of choosing legal bankruptcy is high among SMEs with a drastic decline in accounts payable. These findings indicate that creditors react sensitively to changes in the creditworthiness of companies. Their treatise is not yet released as of June 2005. Hereafter, they are scheduled to present their results at the national convention of the Japan Law and Economic Association and the autumn convention of the Japanese Economic Association.

2005.10: Third CRD study conference

On October 27, 2005, the third CRD study meeting invited Professor Takehiko Yasuda of the Faculty of Economics of Toyo University, and Iichiro Uesugi, a fellow at the Research Institute of Economy, Trade and Industry (RIETI), as the lecturers.

Professor Yasuda presented "Motivation for Start-ups and the Performance after the Start-up: Analysis of Direct and Indirect Effects (Who Suffers Liquidity Constraint?)." In his paper, he analyzed the relationships between loans from financial institutions and the growth of start-up companies, using data from "Survey of the Environment in Start-up" by the Small and Medium Enterprise Agency. The analysis found that start-ups can obtain no loan or, if any, a very small amount from financial institutions if (1) the entrepreneur is young, (2) his or her school background is inferior, (3) his or her parent is not a company executive, or (4) the business is of the independent type. It also became clear that the performance of start-ups on a certain scale of operation did not differ from that of other types. Because the size of the start-up fund affects the subsequent performance of the company, these findings indicate that the performance of entrepreneurs with these four conditions is adversely affected by the lending behaviors of financial institutions.

Mr. Uesugi spoke on "How Does the Interest Rate Change with the Age of the Debtor Company? Analysis Using CRD Data" (joint research with Professor Tsutomu Watanabe of the Institute of Economic Research, Hitotsubashi University, and Mr. Koji Sakai, a doctoral student at Hitotsubashi University's Graduate School). He divided companies into two types, inferior companies going out of business with age due to natural selection and superior companies changing and adapting their behaviors for survival. He analyzed the relationship between the age of the debtor company and the interest rate on loans. The three scholars converted samples of more than 200,000 companies in CRD into a database and made an exhaustive examination of the relationship between the lifecycles of companies and the financial variable. It is an analysis without parallel in any other country. The main results are the following three points:

  1. The adaptation effect is larger than the selection effect.
  2. Companies going out of business are paying higher interest rates than surviving companies. Among SMEs, natural selection is a commonplace phenomenon, and unnatural survival of inferior companies, helped by banks, is not found.
  3. Gaining a good reputation for low defaulting probability directly affects the interest rate on loans.

The English version of this paper, titled "Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms," was presented at the workshop of the RIETI for corporate finance in September. It is to be released as a discussion paper of the RIETI soon. Other papers by the workshop group are downloadable:

2006.10: Fourth CRD study conference

On October 13, 2006, the fourth CRD study conference invited as lecturers Professor Kyoji Fukao of the Institute of Economic Research, Hitotsubashi University, and Professor Yoshiaki Shikano of Doshisha University's Faculty of Economics and a part-time fellow at the CRD Association.

Professor Fukao presented "Selection of Companies in Nonmanufacturing Industries and Rise in Productivity: Analysis from JIP Micro-Database" (joint research with Mr. Young Gak Kim, a graduate student at Hitotsubashi University, and Mr. Hyeog Ug Kwon, a lecturer at the College of Economics of Nihon University). They structured the "JIP2006 Database" by combining the CRD data, data from the Development Bank of Japan, and data on bankruptcies from Teikoku Databank. They estimated the labor productivity of Japanese nonmanufacturing industries during the second half of the 1990s and the first half of the 2000s. The results are as follows:

  1. In both periods (1997-99 and 2000-02), the internal effect (a rise in productivity at each company) was one of the driving forces to enhance labor productivity.
  2. In the case of companies going out of business, 1997-99 saw the entries of high-productivity companies, mainly large corporations, and the exits of low-productivity companies among SMEs contribute to raising labor productivity.
  3. During 1997-99, the effect of redistribution (decrease of low-productivity companies and increase of high-productivity companies) was negative, and the job cuts conducted by large high-productivity companies in the construction, electricity, and broadcasting industries contributed significantly to the productivity decline for industry overall.
  4. In both periods, the rise in productivity in the telecommunication industry was phenomenal. Retail and wholesale industries accounted for the rise in labor productivity of the overall economy at most as much as the sole telecommunication industry did because of the difference in the scale of operations. In retail and wholesale industries, not only the internal but also the redistribution effects and net entries made a positive contribution to the productivity. Many low-productivity companies in the commerce industries reduced their workforce, and many high-productivity telecommunications companies expanded their workforce. The entertainment, service, and real estate industries increased productivity.
  5. The negative contribution was longest in the construction and transportation industries, because of personnel cuts by large high-productivity companies. In the noncorporate service, broadcasting, and advertising industries, labor productivity declined steadily.

In connection with the report by Professor Fukao, Mr. Atsuyuki Kawakami, a graduate student at Gakushuin University, reported the joint research with Ms. Keiko Ito, an associate professor at Senshu University, "Imports from Low-wage Countries and Intercompany Differences Among Small Companies: Analysis Based on the SME Credit Risk Information Database." The research focused on the expansion of imports from low-wage countries and increased overseas production by Japanese companies, and examined whether these factors are widening the intercompany difference in performance. The results of the analysis are as follows:

  1. Competition against imports from low-wage countries adversely affects the employment at small companies and the growth rate of their sales, but companies with high capital-labor ratio or productivity avoid the adverse effects, if they are exposed to imports from low-wage countries.
  2. In industries where the overseas production rate is high, the growth rate of small companies is significantly low. In industries where the overseas production rate is high and the volume of imports from low-wage countries is great, the adverse effect on employment and sales is even greater.
  3. Industries with intensified competition against are more likely to induce bankruptcies.

Professor Shikano presented "Aspect of Financing for Small and Medium-Sized Enterprises in Japan, Examined from the CRD Database." His research showed the peculiar structure of SME financing in Japan by using the CRD database. His research illustrated that the average SME in Japan (located at the median), according to the CRD database, has six employees, sales of ¥125 million, total assets of ¥84 million, and paid-in capital of ¥10 million. Thus, it revealed that Japanese SMEs are much smaller than generally imagined. In addition, his analysis based on the CRD revealed the following facts about the managerial and financial characteristics of Japanese SMEs:

  1. The shareholders' equity is very small (11% at the medium). As a result, the degree of dependence on liabilities, especially long-term ones, is very high.
  2. Their financial conditions are weak. More than half of companies with fewer than 20 employees have carrying-over deficits. Companies with 100 employees or more generally have good financial positions. Thus, the difference in the financial conditions according to the size is very great.
  3. Even large SMEs with 200 employees or more have only ¥50 million paid-in capital at the medium, far below the legal limit of ¥300 million. A particularly important managerial problem for SMEs is the shortage of shareholders' equity. It is important to enrich the shareholders' equity to vitalize SMEs. Professor Shikano proposes a drastic revision to the Public SME policies.
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