Silviase/jgov_v1.4_full_ann huggingface dataset:
loans associated with a decrease in CAPSUR and that in working capital loans associated with a decrease in CAPSUR of the equal magnitude are similar, reflecting the fact that the effect of CAPSUR on the JASME's lending appears only in working capital loans. The average loans outstanding borrowed from a main bank for the 2,061 firms we use for our regressions and the average CAPSUR are 412.7 million yen and -0.024, respectively, suggesting that the average decrease in the amount of loans borrowed from a main bank due to a main bank's poor capital adequacy is 9.8 million yen. This means that on average the JASME loans offsets 24.2% ( $ =\frac{2.6}{9.8}\times100 $ ) of a decrease in a firm's loans borrowed from its main bank. As mentioned above, since the JASME lends only long-term loans with maturity no less than one year, this exercise may be more appropriate for a main bank's long-term loans. The average long-term loans outstanding borrowed from a main bank for the 2,061 firms is 219.0 million yen, suggesting that the average decrease in the amount of long-term loans borrowed from a main bank is 5.2 million yen. This means that on average JASME loan offsets 45.6% of a decrease in a firm's long-term loans borrowed from its main bank. These numbers are economically very significant.

As for variables other than CAPSUR, the coefficient of the logarithm of total assets
is positive and significant when a dependent variable is either the logarithm of total loans or that of working capital loans, confirming that a firm with larger total assets generally tends to borrow a larger amount of loans. The coefficient of ROA is negative and significant when a dependent variable is either the logarithm of total loans or that of working capital loans. This is presumably because the “Fund” was aimed at providing working capital loans to firms with less cash flow that suffered from liquidity constraints due to insufficient supply of loans from poorly capitalized private banks.

The effects of leverage on equipment loans and that on working capital loans are opposite each other as the coefficients of leverage are negative and positive when dependent variables are the logarithms of equipment loans and working capital loans, respectively. The effect of leverage on the size of loans or its growth is found to be positive by both Gopalan et al. (2011) and Bharath et al. (2011). Our finding of a negative effect on working capital loans reflects the fact that a lender in our data is a single public lender rather than private lenders whose loan contracts are investigated in aforementioned studies. The positive effect of leverage on working capital loans suggests that, taking advantage of the “Fund”, the JASME meant to increase working capital loans to firms with a higher leverage that were more vulnerable to reduced supply of lending by their private lenders during the period of the credit crunch. The negative effect of leverage on equipment loans, on the other hand, suggests that when making equipment loans that were not the target of the “Fund”, similarly to private lenders, the JASME was reluctant to lend to greatly leveraged firms whose credit risks were generally greater. $ ^{26} $
#### 4.3. The Regression Results for Firm Performance, Real and Financial Behavior Firm profitability

Table 3 shows the regression results of equation (3) with ROA as of FY 2001 as a dependent variable. $ ^{27} $ Column 1 shows the results without control variables, whereas columns 1 and 2 show the results of the regressions with independent variables that include the logarithm of lagged total assets (as of FY 2000) and with this additional variable and an ex-ante ROA that is an independent variable used to run the regression of equation (1), respectively. Except in column 1 where the corresponding J statistic shows that the null of instrumental variables being independent of an error term is rejected, the coefficients of the logarithm of JASME total loans are negative and statistically significant at the 5 percent significance level. The effect of JASME loans is substantially smaller when the ex-ante ROA is included as an independent variable than when it isn’t. Since the coefficients of two control variables are often significant in regressions whose results are reported later, from now on, we will report the results of the regressions with these variables as independent variables. The effect is economically significant. An estimated coefficient of -0.161 reported in column 2 means that an increase in the amount of JASME loans by one standard error leads to a decrease in ROA by 17 percent when the logarithm of JASME loans is evaluated at its mean. $ ^{28} $

Table 4 reports the regression results for equation (3) with the ROA in column 1 and those with EBITDA to total assets ratio in column 2 as a performance measure in every
fiscal year after the policy period. We find that the coefficients of the instrumented logarithm of JASME loans are negative and statistically significant at least at the 10 percent significance level for ROA of fiscal years 2000 and 2001 but that the coefficients are insignificant for other years. The results for the EBITDA to total assets ratio are qualitatively similar to the results for ROA.

## I nvestment rate

Table 5 reports the results of regressions of the investment rate in FY 1999. Columns 1 and 2 report the results of regressions with and without CAPSUR and JASME as independent variables, respectively. Columns 3 and 4 report the results for a sample of the firms whose total assets are less than the median (a small firm sample) and a sample of the firms whose total assets are no less than the median (a large firm sample). $ ^{29} $ The coefficient of JASME is negative and significant for the full sample and the small firm sample but is not significant for the large firm sample. The coefficients of the marginal q and the cashflow to capital stock ratio are all positive but insignificant for one but all of them. An estimated coefficient of -0.032 reported in column 2 means that an increase in the amount of JASME loans by one standard error leads to a decrease in investment rate by 3.1 percent when the logarithm of JASME loans is evaluated at its mean. $ ^{30} $

## Cash to capital stock ratio

Columns 1 through 3 of Table 6 report the results of the regressions of a change in the cash to capital stock ratio in FY 1999. $ ^{31} $ For cash to capital stock ratio regressions,
since a coefficient of CASPUR is not statistically significant for a regression of new JASME capital loans and it is for a regression of new JASME working capital loans, we employ the logarithm of working capital loans as an independent variable. Columns 1, 2 and 3 report the results of the regression without any interaction term, the results of the regression with an interaction term between JASME working capital loans and the cash flow to capital stock ratio and the results of the regression with an interaction term between CAPSUR and the cash flow to capital stock ratio. $ ^{32} $ These interaction terms are meant to capture effects of the main bank's lending supply and the JASME's lending to mitigate a firm's financial constraint as captured by a firm's cash flow sensitivity of cash (CFSC). While the coefficients of the cash flow to capital stock ratio and CAPSUR are significant and positive and significant and negative, respectively, the coefficient of the interaction term between the cash flow to capital stock ratio and the JASME working capital loans is almost significant and negative at the 10 percent significance level, suggesting that the JASME lending has a weak effect of reducing the CFSC, which further implies that the JASME loans likely mitigate the financial constraint of a firm when making investment.

## Borrowing growth

Column 4 of Table 6 reports the results of the regression of the borrowing growth in FY 1998 because, by definition, new loans borrowed are supposed to affect a firm's borrowing simultaneously. $ ^{33} $ As in the case of the cash ratio regressions, the logarithm
of working capital loans is employed as an independent variable as a coefficient of CAPSUR is significant for a regression of this variable. The coefficient of JASME working capital loans is negative and statistically significant. $ ^{34} $ An estimated coefficient of -0.073 reported in column 4 means that an increase in the amount of JASME loans by one standard error leads to a decrease in the borrowing growth by 7.8 percent when the logarithm of JASME loans is evaluated at its mean. $ ^{35} $

## Employment growth

Column 5 of Table 6 reports the results of the regression of the employment growth in FY 1999. Neither a coefficient of new JASME loans nor that of the ex-ante employment in FY 1998 is statistically significant.

## Medium-term effects of JASME loans on investment rate and employment growth

Columns 1 and 2 of Table 7 report the effects of JASME loans on investment rate and employment growth in every fiscal year after the policy period until FY 2003. The negative effect of JASME loans on investment rate continues for three years until FY 2001 and then dies out whereas the effect on employment growth is not statistically significant at the 10 percent significance level except for the weakly significant and positive effect on the employment growth measured over two years until FY 2000.

## Discussion
The JASME loans affect a borrowing firm’s ex-post profitability and investment negatively for three years and these effects of the JASME loans dissipate thereafter. The JASME loans’ negative effects on profitability and investment could reflect the fact that, by design, the JASME’s policy loans were bound to lending to firms that had temporary difficulty with working capital management due to external financial environments, which could further mean that the larger loans were targeting the firms that would be expected to be less profitable and make less investment at least in a few years during the recovery from financial difficulties.

To deal with this selection concern, we rerun ROA and investment rate regressions for three years when the effects are negative without ex-ante ROA and leverage, which the JASME likely uses when selecting firms vulnerable to an external financial shock, as instrumental variables. The effects of JASME loans on ROA reported in Table 8 are not statistically significant, suggesting that the negative effects found in Table 4 result from this selection problem. $ ^{36} $ The effects of JASME loans on investment remain negative and significant except in FY 2000. Since larger JASME loans a firm borrowed may have allowed the firm larger debt repayments to its private lenders, the firm may have prioritized repayments over investment temporarily so that JASME loans likely induced firms to hold off investment at least temporarily. $ ^{37} $

A weak but positive effect of JASME loans on the ex-post two-year employment
implies that the JASME loans were lent to firms with a growth potential. Besides, the fact that the loans lent by the JASME generally have longer maturities than those lent by private lenders means that the positive effects on the former if any tend to emerge later than those on the latter. $ ^{38} $ $ ^{39} $ $ ^{40} $

Uesugi et al. (2010) who find that the firms that were provided public credit guarantees on the loans borrowed from private lenders under the Special Credit Guarantee program that was in effect from October 1998 through March 2001, the period that partially coincides the period of the JASME’s expanding lending, and whose aim was very similar to the JASME’s “Fund”, performed more poorly than those that were not up to two years argue that the results reflect borrowers’ moral hazard of misusing borrowed funds because failure to repay contractual dues would not mean a firm’s default. Since loans a firm borrowed from the JASME were not publicly guaranteed, a firm should have had less incentive to get indulged in moral hazard. As the Special Guarantee Program
and the Fund have virtually the same policy objective, the negative effects of these government programs, however, may capture policy’s social goals rather than borrowers’ moral hazard. $ ^{41} $

At the first glance, the JASME loans’ negative effect on a firm’s overall borrowing growth is puzzling. This most likely reflects the fact that, in practice, the JASME loans were aimed at helping a firm repay preexisting loans outstanding the firm is owed to its private lenders that may have even demanded to quicken debt repayments.

In a long run, our findings are not inconsistent with the extant studies we introduced earlier where the effect of lending by SOBs on borrower firms’ ex-post performance is found to be mostly neutral. $ ^{42} $

### 5. Conclusion

In this paper, using the data of loan contracts extended by the JASME, we examined
whether its lending behavior was consistent with its policy mission of mitigating adverse effects on SMEs caused by the credit crunch of the late 1990s. As the JASME launched the “Fund to Deal with Changes in Financial Environments” on December 1, 1997, whose primary objective was to deal with the credit crunch, we selected the sample of the JASME’s loan contracts extended over the period from December 1997 through the end of the next fiscal year, March 1999, and examined whether the JASME made a larger amount of loans to firms that were more vulnerable to the credit crunch. We found that the JASME made a larger amount of working capital loans to the firms whose main bank was more poorly capitalized and reduced lending more greatly, confirming that the JASME’s lending policy was aligned with its mission.

We then found that the logarithm of JASME’s total loans instrumented by the main bank’s lending supply growth as explained by the bank’s capital adequacy have negative effects on the investment rate until three years post borrowing but the effects die out afterward and that the JASME’s lending have a weak effect to mitigate the cash sensitivity of cash that captures a firm’s financial constraint.
## Appendix

In this appendix, we detail the steps to compile the dataset we use in this study. When constructing the dataset, we combine the data extracted from three databases about the firms borrowing from the JASME and contracts it extends to the firms as well as the Nikkei NEEDS databank for the data about the JASME's borrowers' private main banks, which was originally used by Watanabe (2007a). Three databases we are provided by the JFC are the database about loan contracts extended by the JFC (the JFC contract database), the database about firms' financial statements (the JFC financial statement database) and the database about firms' transactions with financial institutions (the JFC financial institution database).

The JFC contract database records all the contracts extended by the JASME and the JFC's Small and Medium Enterprise Unit, the JASME's successor institution from FY 1995 through FY 2011. The database records 25,161 contracts and 25,321 contracts extended by the JASME in FY 1997 and FY 1998, respectively. Since the JASME may extend multiple loan contracts to a single firm in a given fiscal year, the number of contracts extended by the JASME in a respective year does not necessarily equals that of firms the JASME extends loan contracts to in the same fiscal year.

The JFC financial statement database contains 772,686 firm - fiscal year observations over the period from FY 1954 through FY 2012. $ ^{43} $ The JFC financial institution database, on the other hand, contains 3,638,020 financial institution - fiscal year observations over the period from FY 1982 through FY 2012. $ ^{44} $ In the latter database, for each firm in each fiscal year, the information about multiple financial
institutions are recorded if the firm has a debt outstanding owed to multiple institutions in the year. These institutions include the JASME (JFC). The JFC collects financial statements of each firm and the information about its lenders for up to 10 most recent fiscal years as of the latest fiscal year in which the debt outstanding the firm owed to the JSAME (JFC) is positive. Thus, for example, if a firm borrowed a loan from the JASME in FY 1997 and keeps the positive loans outstanding owed to the JFC in FY 2011, the firm's financial statements recorded in the JFC financial statement database and the information about its lenders recorded in the JFC financial institution database are those from FY 2002 through FY 2011 only. Thus, the financial statements of that firm and the information about its lenders as of FY 1997, the year in which a loan was originated, or earlier are unavailable. Conversely, if a firm borrowed a loan from the JASME in FY 1997, the firm's financial statements and the information about its lenders of that year remain available only when the firm either lost its debt outstanding owed to the JASME by FY 2007 or it became out of business while leaving its debt not fully repaid to the JASME by that year. Since until FY 1998 the JASME was not required to record the information about all the non JASME financial institutions on the financial institution database, the number of firms whose financial statements are available and that of firms for which information about its main bank is available are not equal.

We divide the JFC financial statement database and the JFC financial institution database by the April - March fiscal year pertaining to financial institutions. As a result, we are left with financial statements for 19,108 firms and of 20,025 firms for FY 1997 and FY 1998, respectively. Similarly, we are left with the information about a firm's lenders for 3,820 firms and 14,280 firms for FY 1997 and FY 1998, respectively.

We, then, merge the data extracted from three databases provided by the JFC year by year using an identification number assigned to each firm commonly employed in these
databases. First, we merge the data extracted from the JFC contract database with the data extracted from the JFC financial statement data, leaving us with 5,881 contracts extended by the JASME and 5,848 contracts for FY 1997 and FY 1998, respectively. Next, we merge these data with the data extracted from the JFC financial institution database, leaving us with 1,194 contracts and 3,107 contracts for FY 1997 and FY 1998, respectively. As it turns out, these 4,301 contracts extended in FY 1997 and FY 1998 remaining in our data are made to 3,297 different "firms". The caveat is that at this stage some of these 3,297 "firms" may appear in the data twice, once in FY 1997 and another time in FY 1998.

We, then, merge the data of 3,297 “firms” with the data about an increase (a decrease) in the lending growth of a firm’s main bank in response to its capital surplus (shortage) in excess (shortage) of its target for the capital (to asset ratio) estimated over 126 domestically licensed banks examined by Watanabe (2007a), which do not include such depository institutions as shinkin banks and credit cooperatives that are not chartered under the Banking Act. The number of “firms” is reduced to 2,580.

Dropping firms whose loan contracts in our data were all dated before December 1, 1997, the date of the inauguration of the “Fund to Respond to Changes in Financial Environments”, the number of “firms” is reduced to 2,394. Finally, subtracting 333 firms that appear twice (both in FY 1997 and FY 1998) in the data from 2,394 “firms”, the final number of firms in our dataset is 2,061.

The samples used for the regressions of equation (3) are constructed by merging this dataset of 2,061 firms with the financial data of firms for respective fiscal year and for its previous year (the data of the previous year are used for a lagged variable) extracted from the JFC financial statement data.
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