Demand for bank loans and investment under borrowing constraints: A panel study of Japanese firm data

We estimate a corporate demand model for bank loans on the basis of panel d ata set of Japanese corporations. What is novel is an explicit treatment of borrowing constraints in the estimation, which is formulated as a function of the land asset of the firms. The model is estimated by employing the ec onometric technique used for analyzing the disequilibrium model. The virtue of our approach is to separate firms into constrained and unconstrained gr oups endogenously. We find that land plays a significant role as collateral in mitigating the borrowing constraints. We also compare the investment be havior between the constrained firms and the unconstrained firms. Cash flow as well as land plays a far more vital role in the investment decision for the borrowing-constrained firms.