Japanese firms in financial distress and main banks: Analyses of interest-rate premia

The main bank system can play an important financial role for Japanese firms in distress by alleviating the firm's financial cost. First, firms pay positive premia on interest rates at the time of financial distress. Second, firms with positive bank borrowing tend to pay significantly lower though still statistically significantly positive interest-rate premia, in periods of financial distress than do firms with zero bank borrowing. Third, if we focus on firms with positive bank borrowing, firms with main banks pay significantly lower interest-rate premia than do firms without main banks. Fourth, the discounting notes receivable, due to intra-firm trade credit, plays an important role for liquidity-constrained firms without main banks.