The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel

47 Pages Posted: 9 Feb 2007

See all articles by Jie Gan

Jie Gan

Cheung Kong Graduate School of Business

Multiple version iconThere are 3 versions of this paper

Abstract

This paper studies how a shock to the financial health of banks, caused by a decline in the asset markets, affects the real economy. The land-market collapse in Japan provides an ideal testing field in separating the impact of a loan supply shock from demand shocks. I find that banks with greater real estate exposure have to reduce lending. Firms' investment and market valuation are negatively associated with their top lender's real estate exposure. The lending channel is economically important: it accounts for one-third of lending contraction, one-fifth of the decline in investment, and a quarter of value loss.

Keywords: Bank liquidity shock, Bank health, Bank relationships, Lending channel, Japanese economy

JEL Classification: G21, C41

Suggested Citation

Gan, Jie, The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel. Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=962288

Jie Gan (Contact Author)

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
150
Abstract Views
990
Rank
118,241
PlumX Metrics