This was most acutely observed in Japan during the several years after the bubble burst: a pile-up of non-performing loans seemed to lead to a breakdown in the “market Selection mechanism” around 1997. Figure 6 shows the result of a large-scale panel analysis of Japanese firms, in which the total factor productivity of exiting and surviving firms is compared.
Since July 2008, the index has declined even more, by about 50%. As you can see from the chart, the most severe stock market losses occurred in the banking sector, with a decline of about 50% since mid-September 2008 and about 70% since summer 2007.