industries (manufacturing).

The second feature, which is related to the first, is less dependence on borrowings for the large corporations on one hand, and the more dependence on borrowings for the medium or small-sized corporations on the other hand. Figure 4-1 to 4-6 show the time-series paths of the dependence on borrowings of the corporations measured by the ratio of outstanding loans payable to sales.

The dependence on borrowings are mitigating over time for the largest corporations in manufacturing and construction industries. This tendency is especially notable for manufacturing. This is also seen in Figure 5, where the ratio of outstanding loans to sales are depicted for the corporations whose capital stock is larger than one billion yen. This ratio declined from 32.6 % (42.7 %) in 1975 to 22.7 % (15.2 %) in 1990 for all industries (manufacturing). Figure 6 shows that this change in the structure of the corporate finance is also observed in flow terms. In Figure 6-1 to 6-3 the proportions of equity issue, borrowings, and corporate bonds in the total demand for credit of the corporations whose capital stock is larger than one billion yen are depicted over time. The proportion of borrowings are constantly declining. For manufacturing the ratios are even negative during 1983-1989. On the other hand the proportion of equity issue and bonds are notably high during 1985-1989.

Figure 4 also shows that the dependence on borrowings has increased over time for the rest of the corporations. The dependence has increased even for the largest corporations in wholesale and retail trade, services, and real estate. We will examine below how a shift of financing from borrowing to equity or bond issuing among the large corporations affects the pattern of business fluctuations.

The third feature of a change in the financial structure of the corporations is an increase of the holdings of liquid assets such as cash, time deposits and short-term securities in the late 80's. This is demonstrated in Figure 7-1 to 7-6, where the movements of the ratio of liquid assets to sales are given. It can be seen from the figures that this liquidity ratio increased during 1986 to 1989 for all the industries but real estates, irrespective of the size of the corporations. For real estates the ratio started to rise in 1984, reaching its peak in 1986.

There existed two underlying conditions leading to a rise in the liquidity ratios. One is deregulations on the level of the interest rates on time deposits, which was initiated in March of 1985 as an approval of money market certificate(MMC) and followed by a sequence of the liberalization of the interest rates earned on the time deposits of a large lot. The stock of time deposits including certificates of deposits held by the corporations increased at the rate of 16.0% per annum from 1984 to 1989, while that of the households increased only at the rate of 7.8% per annum. The other is the low interest rates charged on loans during this period. It enabled the corporations to earn large margins by depositing the money borrowed from the banks. A simultaneous operation of borrowing and depositing by the corporations contributed to a creation of credits by raising the magnitude of the credit multiplier.