
Contents
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The Need for Angel Investment The Need for Angel Investment
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Starved of Growth Capital from Banks Starved of Growth Capital from Banks
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The Dreaded Personal Guarantee The Dreaded Personal Guarantee
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Draconian Personal Bankruptcy Laws Draconian Personal Bankruptcy Laws
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The Consequences The Consequences
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Government Loans and Credit Guarantees: Help or Hindrance? Government Loans and Credit Guarantees: Help or Hindrance?
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Pressuring Private Banks to Shore Up Zombies Pressuring Private Banks to Shore Up Zombies
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Zero Interest Rate Policy Further Atrophies Bankers’ Skills Zero Interest Rate Policy Further Atrophies Bankers’ Skills
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MOTHERS Market Proves a Disappointment MOTHERS Market Proves a Disappointment
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Finance, the SME Succession Crisis, and the Rise of New Financial Institutions Finance, the SME Succession Crisis, and the Rise of New Financial Institutions
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No Obvious Silver Bullet in Banking No Obvious Silver Bullet in Banking
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Cite
Abstract
The dearth of external finance is Japan’s single biggest hurdle to having more innovative, high-growth startups. Most potential founders lack the personal financial assets to start a firm at an adequate scale and fund its growth. Elsewhere, new companies get seed money from business angels, and well-designed tax incentives have stimulated more angel investment. In Japan, by contrast, angels are rare, and the tax incentives are poorly designed and ineffectual. At a later stage, when growth capital is needed, Japanese banks are reluctant to lend to new companies or youngish founders, especially to women. When they do lend, then, more than elsewhere, they demand a personal guarantee, in which the borrower must pledge his house and savings if the firm fails. The government worsens the situation by supplying loan guarantees and outright loans to zombie firms, adding up to 11% of GDP each year. Shoring up the zombies makes it harder for newcomers to gain market share and profitability.
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