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Japanese corporate leverage during the Lost Decades

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  • Khoo, Joye
  • Durand, Robert B.

Abstract

Japan's Lost Decades (失われた20年) present a unique opportunity to study firm behavior during a period of prolonged economic distress. This paper demonstrates that lessons learnt in “normal” conditions apply to firms in economies in extremis. Japanese firms relied on internally generated funds and precautionary cash holdings to reduce their debt. We document considerable growth in nearly-all-equity firms: 7.5% in 1990 to 28.3% in 2014. We also document that Japan's Lost Decades are associated with firms having low market-to-book ratios. Firms' leverage is lower, however, only when market-to-book values are unequivocally high.

Suggested Citation

  • Khoo, Joye & Durand, Robert B., 2017. "Japanese corporate leverage during the Lost Decades," Pacific-Basin Finance Journal, Elsevier, vol. 46(PA), pages 94-108.
    • Handle: RePEc:eee:pacfin:v:46:y:2017:i:pa:p:94-108
    DOI: 10.1016/j.pacfin.2017.07.002
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    More about this item

    Keywords

    Capital structure; All equity firms; Japan's Lost Decades;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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