Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan / Joe Peek, Eric S. Rosengren.

Format:

Book

Author/Creator:

Peek, Joe.

Contributor:

National Bureau of Economic Research.

Rosengren, Eric S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9643.

NBER working paper series no. w9643

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Unnatural Selection

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

This study examines the misallocation of credit in Japan associated with the perverse incentives of banks to provide additional credit to the weakest firms. Firms are far more likely to receive additional credit if they are in poor financial condition, and these firms continue to perform poorly after receiving additional bank financing. Troubled Japanese banks allocate credit to severely impaired borrowers primarily to avoid the realization of losses on their own balance sheets. This problem is compounded by extensive corporate affiliations, which provide a further incentive for banks to allocate scarce credit based on considerations other than prudent credit risk analysis.

Notes:

Print version record

April 2003.