Financial constraints of firms and bank characteristics

There are a variety of institutional lenders in capital markets, such as banks or credit unions. Using the panel data of Japanese firms, we evaluate banks and credit unions based on their borrowers' cash-flow sensitivity of investments, which is a measure of borrowers' financial constraints. Our findings suggest that credit unions are doing better than banks in loosening the financial constraints of small and, in particular, middle-aged firms. We then discuss some potentially socially desirable policy interventions. We further contribute to the literature on firms' financial constraints by estimating investment-cash-flow sensitivity using a sample that has not been analyzed. (c) 2019 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.