TY - JOUR AU - Uchida, Hirofumi AU - F.Udell, Gregory AU - Watanabe, Wako TI - Bank Size and Lending Relationships in Japan JF - National Bureau of Economic Research Working Paper Series VL - No. 13005 PY - 2007 Y2 - April 2007 DO - 10.3386/w13005 UR - http://www.nber.org/papers/w13005 L1 - http://www.nber.org/papers/w13005.pdf N1 - Author contact info: Hirofumi Uchida Wakayama University Faculty of Economics 930 Sakaedani Wakayama, JAPAN Fax: 81-73-457-7711 E-Mail: uchida@eco.wakayama-u.ac.jp Gregory Udell Kelley School of Business 1309 East Tenth Street Bloomington, IN 47405-1701 USA India E-Mail: gudell@indiana.edu Wako Watanabe Faculty of Business and Commerce Keio University 2-15-45 Mita, Minato-ku Tokyo 108-8345 JAPAN Tel: 81-3-5427-1252 Fax: 81-3-5427-1252 E-Mail: wakow@fbc.keio.ac.jp M1 - published as Hirofumi Uchida, Gregory F. Udell, Wako Watanabe. "Bank Size and Lending Relationships in Japan," in George Baker, Takeo Hoshi, Hideshi Itoh, and Sadao Nagaoka, organizers, "Organizational Innovation and Firm Performance" Journal of the Japanese and International Economies 22(2), June 2008 (Elsevier Inc.) (2008) M3 - presented at "TRIO Conference", December 15-16, 2006 AB - Current theoretical and empirical research suggests that small banks have a comparative advantage in processing soft information and delivering relationship lending. The most comprehensive analysis of this view found using U.S. data that smaller SMEs borrow from smaller banks and smaller banks have stronger relationships with their borrowers (Berger, Miller, Petersen, Rajan, and Stein 2005) (BMPRS). We employ essentially the same methodology as BMPRS on a unique Japanese data set and obtained findings that are quite interesting from an international comparison point of view. We found like BMPRS that larger firms tend to borrow from larger banks. However, unlike BMPRS we did not find that this was because larger firms are more transparent. Together these results imply that large banks do not necessarily have a comparative advantage in extending transactions-based lending. We also found like BMPRS that smaller banks have strong relationships with their borrowers. However, we find that banking relationships in the U.S. and Japan are strong in somewhat different dimensions. Our paper clarifies these and other interesting similarities and differences between the U.S. and Japan. ER -