Economics of Interfirm Networks (eBook)

Tsutomu Watanabe has been a professor of economics at the Graduate School of Economics, The University of Tokyo, since October 2011. He has also been a professor at Hitotsubashi University (1999–2011) and a senior economist at the Bank of Japan (1982–1999). He has held visiting positions at various universities, including Kyoto University, Bocconi University, and Columbia University. He received his Ph.D. in economics from Harvard University in 1992 and did his undergraduate work at The University of Tokyo. Watanabe’s main research area is monetary policy and inflation dynamics. He is known for his series of papers on monetary policy when nominal interest rates are bounded at zero; in particular, his paper on the optimal monetary policy at the zero lower bound, whose first draft appeared in 2001 and final version was published in 2005, has been widely recognized as the first paper to provide a simple description of the liquidity trap and characterize the optimal policy response to it in a setting of dynamic stochastic general equilibrium. He is an author of many books and more than 40 academic journal articles on monetary policy and international finance.  Iichiro Uesugi is an associate professor at the Institute of Economic Research of Hitotsubashi University, Japan. He received his M.A. and Ph.D. in economics in 2000 from the University of California, San Diego. Prior to becoming a member of the faculty of Hitotsubashi University in 2011, he joined the Ministry of Economy, Trade and Industry (METI) in 1993 and worked in the Economic Policy Unit of the Minister's Secretariat, Macroeconomic Affairs Division; the Planning Division of the Coal Department in the Agency of Natural Resources and Energy; the Research Division of the Small and Medium Enterprises Agency; and the Research Institute of Economy, Trade and Industry. His research interests focus on firm dynamics, financial intermediation, and the Japanese economy. His research has been published in a number of scholarly journals including the Journal of Money, Credit, and Banking, the Journal of Banking & Finance, and the Journal of the Japanese and International Economies. Arito Ono is a professor at the Department of Banking and Corporate Finance, Faculty of Commerce, Chuo University, Japan. Prior to joining Chuo University in 2015, he was a senior economist at the Mizuho Research Institute, and a senior economist at the Institute for Monetary and Economic Studies, Bank of Japan (2009–2011). He has also been a member of several working groups at the Financial System Council, Financial Services Agency (2011–2015). His main fields of research are banking and corporate finance, and he has published papers in the Journal of Money, Credit, and Banking, the Journal of Banking & Finance, and the Journal of Financial Stability, among others. He received a B.A. in economics from the University of Tokyo and a Ph.D. in economics from Brown University.

Acknowledgements 6
Contents 8
About the Editors 10
Chapter 1 The Economics of Interfirm Networks: Main Issues 12
1.1 Introduction 12
1.2 Summary of the Volume 13
1.2.1 Structure and Evolution of Interfirm Networks 13
1.2.2 Networks, Economic Geography, and Firm Activities 16
1.2.3 Bank-Firm Relationships and Firm Dynamics 18
1.3 Issues for Future Research 20
References 21
Part I Structure and Evolution of Interfirm Networks 24
Chapter 2 Buyer-Supplier Networks and Aggregate Volatility 25
2.1 Introduction 26
2.2 Equivalence of Leontief and PageRank Models 28
2.3 Data 29
2.4 The Structure of Customer--Supplier Networks 32
2.4.1 Unequal Links Across Firms 32
2.4.2 How Closely are Firms Interconnected? 34
2.5 The Evolution of Customer--Supplier Networks 36
2.6 Implications for Firm Sales and Growth 40
2.6.1 The Relationship Between Customer Links and Firm Sales 40
2.6.2 Can Customer--Supplier Links Predict Firm Growth Correlations? 41
2.7 Conclusion 44
References 45
Chapter 3 Community Structure of a Large-Scale Production Network in Japan 48
3.1 Introduction 49
3.2 Interfirm Transaction Data in Japan 51
3.3 Visualization of the Production Network 51
3.4 Modularity Maximization 53
3.5 Decomposed Communities and Sub-Communities 56
3.6 Inter-Community and Inter-Sub-Community Relationships 61
3.6.1 ``Distance'' 62
3.6.2 Dendrograms 66
3.7 Directional Bias in Interfirm Transactions 69
3.8 Conclusion 71
References 73
Chapter 4 Interfirm Networks in Manufacturing Industry Agglomerations in Japan: Evidence from Survey Data 75
4.1 Introduction 75
4.2 Japan's Three Major Manufacturing Agglomerations 78
4.2.1 Historical Background 78
4.2.2 Interfirm Transaction Networks within the Agglomerations 80
4.3 Survey of Interfirm Relationships in the Three Major Industry Agglomerations in Japan 83
4.3.1 Structure of the Survey 83
4.3.2 Basic Characteristics of Responding Firms 84
4.4 Interfirm Transaction Relationships 86
4.4.1 Trends in Interfirm Transaction Relationships 86
4.4.2 Firms' Relationship with Primary Transaction Partners 91
4.5 Other Types of Interfirm Relationships and Group Activities 94
4.6 Firm-Bank Relationships 94
4.7 Interactions Between Relationships of Different Types 95
4.7.1 Firm-Bank Relationships and Interfirm Transaction Relationships 96
4.7.2 Interaction between R& D Collaborations and Transaction Relationships
4.8 Conclusions 98
References 100
Part II Networks, Economic Geography, and Firm Activities 101
Chapter 5 Economic Geography and Interfirm Transaction Networks 102
5.1 Introduction 102
5.2 Input-Output Data, Trade Data, and Transaction Data 104
5.3 What are Transactions Microdata? 105
5.4 Empirical Research Using Transactions Microdata 105
5.5 Interfirm Transaction Networks and Corporate Decision Making 107
5.6 Interfirm Transaction Relationships and the Geographic Propagation of Shocks 109
5.7 Concluding Remarks and Outlook for the Future 110
References 111
Chapter 6 Delineating Metropolitan Areas: Measuring Spatial Labour Market Networks Through Commuting Patterns 114
6.1 Introduction 114
6.2 Background, Current Practice, and Literature 116
6.2.1 The Current Situation in Colombia 116
6.2.2 Current Practice in the World 116
6.2.3 Prior Literature 120
6.3 A Simple Aggregation Algorithm 121
6.3.1 Preliminary Issues 122
6.3.2 Data 123
6.3.3 Algorithm 124
6.4 Results 125
6.4.1 Metropolitan Areas 125
6.4.2 Urban Regions 129
6.5 Robustness 133
6.6 Conclusions 138
References 138
Chapter 7 Determinants of Business and Financial Network Formation by Japanese Start-up Firms: Does Founders' Human Capital Matter? 141
7.1 Introduction 142
7.2 Literature Review 143
7.3 Analytical Framework and Hypotheses 144
7.4 Empirical Approach 146
7.5 Estimation Results and Discussion 151
7.6 Concluding Remarks 155
References 161
Chapter 8 Geographical Spread of Interfirm Transaction Networks and the Great East Japan Earthquake 163
8.1 Introduction 163
8.2 Network Analysis 165
8.3 Data 166
8.4 Geographical Spread of the Earthquake 167
8.4.1 Definition of Affected Areas 167
8.4.2 Share of Indirect Transaction Partners 168
8.4.3 Geographical Proximity of Indirect Transactions 169
8.4.4 Connecting Path of Indirect Links 171
8.4.5 The Role of Regional Hub Firms in Spreading the Impact of the Earthquake 172
8.5 Conclusion 174
Appendix 175
References 178
Part III Bank-Firm Relationships and Firm Dynamics 180
Chapter 9 Bank-firm Relationships: A Review of the Implications for Firms and Banks in Normal and Crisis Times 181
9.1 Introduction 181
9.2 Exclusive Versus Non-Exclusive Lending 182
9.3 Relationship Banking: Costs and Benefits for Firms and Banks in Normal and Crisis Times 184
9.3.1 Bank Relationships: Benefits and Costs for the Firm During Normal and Crisis Times 185
9.3.2 Bank Relationships: Benefits and Costs for the Bank 187
9.4 The Impact of Monetary Policy and Bank-Firm Relationships 188
9.5 Conclusion 189
References 190
Chapter 10 A New Look at Bank-Firm Relationships and the Use of Collateral in Japan: Evidence from Teikoku Databank Data 194
10.1 Introduction 195
10.2 Data and Sample Characteristics 195
10.3 Relationships Between Firms and Financial Institutions 197
10.3.1 Number of Financial Institutions 197
10.3.2 Main Banks 199
10.3.2.1 Composition 199
10.3.2.2 Switching Main Banks 200
10.3.3 Transactions Between Firms and Financial Institutions: Borrowing 201
10.3.3.1 Total Amount of Borrowing 201
10.3.3.2 Borrowing from Main Banks 202
10.3.4 Transactions Between Firms and Financial Institutions: Deposits 204
10.3.4.1 Total Amount of Time Deposits 204
10.3.4.2 Transactions with Main Banks 205
10.4 Collateral 206
10.4.1 Data 206
10.4.2 Types of Collateral 207
10.4.2.1 Composition 207
10.4.2.2 Univariate Analysis 209
10.4.3 Real Estate Collateral 211
10.4.3.1 Number of Properties, Properties Pledged, and Secured Loans 211
10.4.3.2 Secured Creditors (Lenders) 212
10.4.3.3 Seniority Among Secured Creditors 213
10.5 Conclusion 215
References 216
Chapter 11 What do Cash Holdings Tell us About Bank-Firm Relationships? A Case Study of Japanese Firms 218
11.1 Introduction 218
11.2 Bank-Firm Relationships and Cash Holdings: Formulation of Hypotheses 220
11.2.1 The Transaction Motive and Bank-Firm Relationships 221
11.2.2 The Precautionary Motive and Bank-Firm Relationships 221
11.2.3 The Agency Motive and Bank-Firm Relationships 222
11.2.4 Bank-Firm Relationships and Effective Borrowing Rates 223
11.3 Data Characteristics and Descriptive Statistics of Cash Holdings 224
11.3.1 Dataset Characteristics 224
11.3.2 Descriptive Statistics 225
11.4 Bank-Firm Relationships and their Effect on Firms' Cash Holdings: Empirical Evidence 227
11.4.1 Estimation Results for the Whole Observation Period: 2001--2009 227
11.4.2 Estimation Results for the Sub-Period: 2007--2009 229
11.4.3 Monopoly Rents 231
11.5 Concluding Remarks 235
References 237
Chapter 12 Bank Lending and Firm Activities: Overcoming Identification Problems 239
12.1 Introduction 240
12.2 Early Studies on Bank Lending and Firm Activities 241
12.3 Identification Strategies Used in Recent Studies 242
12.3.1 Event Studies and Bank Failure 244
12.3.2 Use of Geographical Borders 245
12.3.2.1 Evidence of International Transmission Using Aggregate Data 245
12.3.2.2 Evidence of International Transmission Using Matched Bank-Firm Data 246
12.3.2.3 Evidence of Domestic Transmission Using Matched Bank-Firm Data 248
12.3.3 Use of Loan-Level Information for Firms with Multiple Bank Relationships 249
12.3.4 Use of Information on Loan Applications and Acceptance/Rejection 250
12.3.4.1 Survey Evidence on International Transmission 250
12.3.4.2 Survey Evidence on Domestic Transmission 251
12.3.5 Other Identification Strategies 251
12.4 Two Empirical Studies Using an Earthquake as a Natural Experiment 252
12.4.1 Capital Investment 252
12.4.2 Export Behavior 254
12.4.3 Results 255
12.4.3.1 Capital Investment 255
12.4.3.2 Exports 257
12.5 Conclusion 259
References 260
Index 263