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The COVID-19 pandemic has posed a serious threat to the survival of Japanese firms, highlighting the importance of understanding how and why firms exit. In this paper, we use a rich firm-level dataset of Japanese firms to document how firm exit patterns have evolved between 2007 and 2017. Firm exit patterns have been heavily influenced by Japan’s demographic trends, as a majority of exits in recent years were voluntary exits of firms (business closures) owned by CEOs aged 65 years or older without business successors. In contrast to this increase in voluntary exits, other “traditional” firm exits (such as bankruptcies), have declined. These findings underscore the importance of addressing business transition issues in a rapidly aging society.

Corporate Finance --- Exports and Imports --- Industries: Manufacturing --- Demography --- Firm Behavior: Empirical Analysis --- Bankruptcy --- Liquidation --- Market Structure, Firm Strategy, and Market Performance: General --- Transactional Relationships --- Contracts and Reputation --- Networks --- Regional Economic Activity: Growth, Development, and Changes --- Economics of the Elderly --- Economics of the Handicapped --- Non-labor Market Discrimination --- Corporate Finance and Governance: General --- Industry Studies: Manufacturing: General --- International Lending and Debt Problems --- Demographic Trends, Macroeconomic Effects, and Forecasts --- Population & demography --- Ownership & organization of enterprises --- Manufacturing industries --- International economics --- Aging --- Small and medium enterprises --- Manufacturing --- Interest payments --- Demographic change --- Population and demographics --- Economic sectors --- External debt --- Population aging --- Small business --- Debt service --- Demographic transition --- Japan

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We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards, building on Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters, and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates, and interest rates and with a survey-based measure of political uncertainty. It rises around contested national elections and major leadership transitions in Japan, during the Asian financial crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, the deferral of a consumption tax hike, and the onset of the COVID-19 pandemic. Our uncertainty indices for fiscal, monetary, trade, and exchange rate policy co-vary positively but also display distinct dynamics. For example, our trade policy uncertainty (TPU) index rocketed upwards when the U.S. withdrew from the Trans-Pacific Partnership. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan's macroeconomic performance, as reflected by impulse response functions for investment, employment, and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by reducing policy uncertainty.