Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92734
Authors: 
Okada, Tae
Horioka, Charles Yuji
Year of Publication: 
2007
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 682
Abstract: 
Nishimura, Nakajima, and Kiyota (2005) analyze the entry/exit behavior patterns of Japanese firms during the 1990s and find that relatively efficient (high total factor productivity (TFP)) firms exited while relatively inefficient (low TFP) firms survived during the banking-crisis period of 1996-97. They conclude from this finding that the natural selection mechanism (NSM) apparently malfunctions during severe recessions, but we offer a much more plausible interpretation: the NSM continued to function effectively even during this period, but aberrant banking practices (in particular, 'forbearance lending' ('evergreening') and the 'forcible withdrawal of loans' and/or the 'reluctance to lend') caused a shift in the type of natural selection from 'directional selection' to 'disruptive selection,' with the most efficient (highest TFP) firms as well as the least efficient (lowest TFP) firms being favored and firms of intermediate efficiency and TFP being selected against.
Subjects: 
Total factor productivity
Entry and exit
Natural selection
Directional selection
Disruptive selection
Evolution
Banking crisis
Forbearance lending
Forcible withdrawal of loans
Reluctance to lend
Credit crunch
Recession
Japanese economy
Japan
JEL: 
D21
D24
O47
L11
Document Type: 
Working Paper

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