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Why Did the Debt Maturity of the Japanese Firms Get Longer H: A Preliminary Investigation

Author

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  • Tokuo Iwaisako

    (Professor, Institute of Economic Research, Hitotsubashi University)

Abstract

As Japanese firms have reduced the proportion of debts in their capital structures, they have also increased their debt maturities. Since the shorter debt maturity is more costly for the firms of poor performance, it is argued that the maturity length plays the role of signal as the theoretical model of Flannery (1986) and Diamond (1991, 1993) suggest. Using Financial Statements Statistics of Corporations by Industry (FSSCI) data, I examine if the story that both total amount of debt and the debt maturity choice serve as signaling devices of borrower firms, an extension of the signaling model of the choice of debt maturity. At least for the non-manufacturing industry sample, it is confirmed that there is a clear correlation between corporate performance and the reduction of corporate borrowings. On the other hand, when the growth rates of the total debt are at the similar level, the industries that have better performance measured by ROA are more prone to increase or less aggressive to reduce the short-term borrowings. The result of the empirical analyses is consistent with the static model of the debt maturity choice by Flannery=Diamond, when we look at the relationship between the growth rate of the short/long-term debt and ROA alone. However, when the growth rate of total debt is taken into account, significant parts of the variations in the growth rates of short-term and long-term debts remain unexplained.

Suggested Citation

  • Tokuo Iwaisako, 2012. "Why Did the Debt Maturity of the Japanese Firms Get Longer H: A Preliminary Investigation," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(5), pages 563-580, November.
    • Handle: RePEc:mof:journl:ppr019a
    as

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    References listed on IDEAS

    as
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    2. Flannery, Mark J, 1986. "Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
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    5. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
    6. Douglas W. Diamond, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 709-737.
    7. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582481, December.
    8. Iwaisako, Tokuo, 2010. "Aggregate Corporate Saving and Recent Changes in Capital Structures of Japanese Firms," Economic Review, Hitotsubashi University, vol. 61(1), pages 18-32, January.
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