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The effect of managerial ownership on the cost of debt: Evidence from Japan


  • Akinobu Shuto

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Norio Kitagawa

    (Graduate School of Business Administration, Kobe University, Japan)


We examine the effect of managerial ownership on the cost of debt as measured by the interest rate spread on corporate bonds for Japanese firms. First, we find that the managerial ownership is positively associated with interest rate spread after controlling for the other Japanese ownership structure, cross-shareholding and the stable shareholdings by financial institutions. Second, by employing factor analysis to measure the agency cost of debt based on financial variables,we also find that managerial ownership has higher correlation with interest rate spread when the agency cost of debt at the time of bond issue is already larger. The results are robust to additional analyses, including the possibility of non-linear relationship, bond rating, endogeneity problem, and Fama and Macbeth (1973) approach. Our results suggest that prospective bondholders use managerial ownership information to anticipate a firm's future agency cost of debt, and estimate it higher when the current agency cost of debt at issuing bond is already larger. Our results also suggest that accounting information is useful to estimate the agency cost of debt and increase the efficiency of bond contracting. Finally, although previous studies are often prone to emphasizing the findings on the Japanese unique ownership structure, our results reveal that traditional agency theory on managerial ownership is apply to Japanese bond market, which is consistent with the findings of U.S. firms.

Suggested Citation

  • Akinobu Shuto & Norio Kitagawa, 2010. "The effect of managerial ownership on the cost of debt: Evidence from Japan," Discussion Paper Series DP2010-05, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2010-05

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    Cited by:

    1. Yumi Inamura & Shin’ya Okuda, 2017. "Deferred taxes and cost of debt: evidence from Japan," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 358-376, October.
    2. Kachwala, Sakina Tohid & Singla, Chitra, 2016. "Impact of Ownership Structure on Agency Cost of Debt in India," IIMA Working Papers WP2016-03-59, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Shaif Jarallah & Wali Ullah, 2014. "Evolving corporate governance and the dividends behaviour regime in Japan," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 279-303, September.
    4. Norio Kitagawa & Shin' ya Okuda, 2013. "Management Forecasts, Idiosyncratic Risk, and Information Environment," Discussion Papers 2013-38, Kobe University, Graduate School of Business Administration, revised Jul 2013.
    5. Sakina Kachwala & Chitra Singla, 2016. "Impact of Ownership Structure on Agency Cost of Debt in India," Working Papers id:11004, eSocialSciences.
    6. Javeria Farooqi & Surendranath Jory & Thanh Ngo, 2017. "Institutional investors’ activism and credit ratings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 51-77, January.
    7. Akinobu Shuto & Norio Kitagawa & Naoki Futaesaku, 2017. "The Effect of Bank Monitoring on the Demand for Earnings Quality in Bond Contracts," IMES Discussion Paper Series 17-E-12, Institute for Monetary and Economic Studies, Bank of Japan.

    More about this item


    Managerial ownership; Agency cost of debt; Bond yield spread;

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