the portfolio behavior of the corporations such as real investment, land purchase, and borrowings.

2) The land stock played an active role as a collateral in the portfolio behavior of the corporations. We obtained some evidence that a rise in land prices increased the value of land as a collateral and hence led to an increase of the real investment and borrowings of the corporations.

The importance of land stock as a collateral was reinforced by two factors: the financial liberalization under way in the early to the middle of 80's and a rise in the stock prices. These factors enabled large companies to raise the funds directly from the capital market by issuing equity or bonds, which in turn prompted the financial institutions to lend to the corporations that did not have direct access to the capital markets. The banks had not established the long-term, stable relationship with these corporations. Therefore the land asset held by the corporations, which was increasing in value at that time, played a collateral role and eased the agency costs arising from the information asymmetries between creditors and debtors. The loans received were then channeled toward the real investment and the financial investment.

3) The dependence of real activities such as investment on the asset prices works as amplifying the magnitude of the business cycle, since the asset prices move procyclically. The severity of the recession the Japanese economy has experienced results from this very dependence of real activities on the asset markets. The precipitation of the asset prices in the early 90's stripped off the collateral value of the assets held by the corporations and the deteriorating loans made the financial institutions quite cautious in further lending and it choked off the investment to a large extent.

The paper is organized as follows. Section 2 detects the characteristics intrinsic to the current recession and the preceding booms by comparing the current business cycles with those in the past. Section 3 and 4 analyze the roles played by the asset markets in the current business cycles. The effect of the asset prices on the portfolio behavior of the corporations are examined quantitatively in Section 5. Section 6 gives concluding remarks.

### 2. Characteristics of the Contemporary Business Cycles

In this section we first identify the macroeconomic characteristics pertinent to the current recession and the preceding booms by comparing the current business cycles with those in the past. Then light is shed on the micro aspects of the business cycles: changes in the financial structure of the corporations.

The key statistics characterizing the business cycles since 1958 are summarized in Table 1 and 2 for boom periods and recession periods, respectively. From Table 1 we can pick up several points characterizing the second longest booms starting from November in 1986. First, the growth rate of private fixed and residential investment was quite high. The growth rate of both types of investment exceeded 10%, which almost equaled that in the galloping growth period in the 60's.

Second the asset prices such as land and stocks increased rapidly at the rate of around 20 % per