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Firms' Interest Payment Burden and Productivity under a Low Interest Rate Environment

日本語

December 26, 2024
Yoshibumi Makabe*1
Tomoyuki Yagi*2

Abstract

For a long period, a low interest rate environment has continued on in Japan. While this environment puts upward pressure on the real economy through a decline in real interest rates, it also hinders the business dynamics of firms and induces inefficient resource allocation.
Taking this into account, in this paper, we first try to extract a group of firms that continue to survive with support from banks or other entities despite performing poorly and having no prospect of recovery. We refer to these firms as "financially-supported firms." We find that the share of financially-supported firms in Japan has remained at a low level in recent years. The productivity of financially-supported firms is lower than that of other firms and despite their limited number, they put downward pressure on aggregate productivity. We then analyze the spillover effects of financially-supported firms on the macroeconomy, i.e., through distortion in resource allocation. The analysis of large firms in recent years does not suggest that the presence of financially-supported firms has suppressed the productivity of other firms.
Next, we conduct an empirical analysis on the relationship between a low interest rate environment and financially-supported firms. No direct relationship is confirmed between the two, partly due to the fact that the emergence of financially-supported firms was prevented under a stable financial system. However, in recent years, while the share of firms facing a significant deterioration in business conditions, such as financially-supported firms, has been at a low level after having declined from the mid-1990s through the mid-2000s, the share of firms remaining at relatively low productivity has been flat; this suggests the possibility that the low interest rate environment might be one of the attributable factors.

JEL classification
D22, D24, D30

Keywords
Resource allocation, Low interest rate, Financially-supported firms

The authors are grateful to Takashi Nagahata, Teppei Nagano, Koji Nakamura, Takeyuki Oshiumi, Akira Otani, and the staff at the Bank of Japan for comments and discussions. We are also grateful to Tomohiro Okubo and Kyosuke Chikamatsu for their assistance. Any remaining errors are the authors' own. The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Bank of Japan.

  1. *1Research and Statistics Department
    E-mail : yoshibumi.makabe@boj.or.jp
  2. *2Research and Statistics Department (currently Monetary Affairs Department)
    E-mail : tomoyuki.yagi@boj.or.jp

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