IDEAS home Printed from https://ideas.repec.org/p/eti/rdpsjp/10056.html
   My bibliography  Save this paper

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

Author

Listed:
  • SATO Toyohiko
  • XU Peng

Abstract

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.

Suggested Citation

  • SATO Toyohiko & XU Peng, 2010. "Japanese SMEs' Choice between Private Placement Bonds and Bank Loans (Japanese)," Discussion Papers (Japanese) 10056, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:rdpsjp:10056
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/10j056.pdf
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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: (KUMAGAI, Akiko). General contact details of provider: http://edirc.repec.org/data/rietijp.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.