Priority Rule Violations and Perverse Banking Behaviors

Provides theoretical arguments to consistently explain contradictory-appearing Japanese banking behaviors in the 1990s, i.e., the credit crunch and inefficient additional lending

Differs from the typical explanations of the credit crunch that are based mainly on the debt overhang theory or BIS regulation of capital adequacy ratios

Explores the optimal legal rule or scheme for insolvent firms to make efficient investment decisions

Autorentext

Hiroyuki Seshimo is a professor of economics and finance at Senshu University and visiting scholar of the Research Institute of Capital Formation, Development Bank of Japan. His main areas of research are finance, urban economics, law and economics, and monetary economics. Born in 1967, Prof. Seshimo received a Bachelor's degree in economics from Sophia University in 1990 and a Ph.D. in economics from Keio University in 2004. He was appointed professor of economics at Senshu University in 2005.

Fukuju Yamazaki is a professor of economics at the College of Economics, Nihon University of Tokyo; His research areas are urban economics, land and housing economics, and law and economics. Born in 1954, He received a Bachelor's degree in economics in 1976 and a Ph.D. in economics from Sophia University of Tokyo in 2000. He was a lecturer, an assistant professor and a professor of economics at Sophia University from 1983 to 2012 and appointed a professor emeritus of Sophia University.

Inhalt

1 Introduction.- 2 Examples of APR violation in Japan in the 1990s.- 3 Fundamental Structure of our Model and the Result in the Case with No APR Violations.- 4 Economic Analysis of Excess Additional Credit (Loan Evergreening).- 5 Empirical Evidence.- 6 DIP Finance, Optimal Priority Rule, and Implications for Japanese Legal Reforms.- 7 Concluding Remarks.