Beschreibung:
This paper explores how financial controls functioned to affect funds allocations, focusing on late 1930s Japan. Japan in this period is advantageous in identifying the impact of financial controls, because we can distinguish treatment and control groups in multiple respects to examine difference in differences using firm-level data. For larger firms, subject to the financial controls, the difference in capital growth between firms in the nonpriority and priority industries expanded when the financial controls started, while differences in borrowing growth between them did not until the controls were later extended to cover both short- and long-term funds. To preview the main results, for larger firms, the differences in capital growth between firms in the nonpriority and priority industries expanded after the financial controls commenced, whereas the corresponding differences in terms of borrowing growth did not until the controls were extended to cover both short- and long-term funds. With respect to the samples including small and medium-sized firms, when the controls started, for a nonpriority industry, capital growth declined for the firms with capital over the upper limit of the control exemption, compared with those with capital under the limit. Conversely, for a priority industry, this difference across the upper limit is not observed. These results strongly suggest that financial controls did indeed affect and alter the funds allocations