IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Japanese SMEs' Choice between Private Placement Bonds and Bank Loans (Japanese)

Listed author(s):
  • SATO Toyohiko
  • XU Peng
Registered author(s):

    In this paper, we examine how and what types of Japanese small and medium-sized enterprises (SMEs) use the private placement market, exploring factors behind their choice between private placement bonds and bank loans as a means of raising capital. Privately placed corporate bonds tend to have a medium- to long-term maturity period and are often guaranteed by banks. The typical profile of an issuer of privately placed bonds is a medium-sized firm that is fairly profitable and has relatively low financial leverage. Meanwhile, poorly performing medium-sized enterprises - i.e., those posing a serious information asymmetry problem - and smaller firms tend to opt for bank loans. As compared to issuers of private placement bonds, firms relying on long-term bank loans generally have a higher fixed-to-total assets ratio. That is, smaller firms and information-problematic medium-sized firms tend to borrow from banks. We argue that issuing private placement bonds offers greater advantages to those firms capable of doing so, namely, profitable and medium sized firms with relatively low financial leverage because it enables them to secure medium- to long-term financing and thus avoid frequent bank interference with their business management. Furthermore, they can build a track record of successful bond issuance. These findings have important policy implications regarding SMEs' choice of financing. Meanwhile, firms show less of a tendency to issue bonds when their main creditor bank is saddled with more bad loans. This suggests that the credit crunch is not a reason for opting for private placement bonds.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion Papers (Japanese) with number 10056.

    in new window

    Length: 32 pages
    Date of creation: Dec 2010
    Handle: RePEc:eti:rdpsjp:10056
    Contact details of provider: Postal:
    11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901

    Phone: +81-3-3501-1363
    Fax: +81-3-3501-8577
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eti:rdpsjp:10056. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.