DataIn this study, we use firm-level data on small businesses in Japanfrom 2006 to 2009. We selected the sampling period to include thetwo years before and after the Lehman shock. The data are fromthe Credit Risk Database for Small and Medium Enterprises (CRD)established by several financial institutions and the CGCs underthe guidance of the Small and Medium Enterprise Agency in Japan.The database is managed by the CRD Association.7The data collec-tion process targets firms defined as small and medium enterprisesunder the Small and Medium Enterprise Basic Law.8The data setused in this study includes only corporations in the manufacturingindustry that were present in the CRD for more than the past threeconsecutive years. We omit financial and small farm businesses.Furthermore, some variables9include outliers in only the uppervalues, so we truncate the sample at the 99 percentile to excludethese outliers. When variables10include outliers in both the upperand lower values, we truncate at both the 0.5 and 99.5 percentilesof the sample. The data collected on the 80,625 firms from 2006 to2009 include 91 items from their balance sheets and profit and lossstatements. The total number of firm-year observations is 278,611.The CRD collects small business data to construct scoring mod-els that predict default by small businesses. The CRD uses data onthe small business clients of 124 financial institutions and 52 pub-lic guarantee corporations with regular member status (as at July