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The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan

Author Info

Listed author(s):
  • Takeo Hoshi
  • Anil Kashyap
  • David Scharfstein

Abstract

As a result of deregulation, there was a dramatic shift during the 1980s in Japan away from bank debt financing towards public debt financing: in 1975, more than 90% of the corporate debt of public companies was bank debt; in 1992 it was less than 50%. This paper presents a theory of the choice between bank debt and public debt and then examines the theory using firm level data on borrowing sources in Japan. We find that high net worth companies are more prone to use public debt. We also find that the more successful members of industrial groups (or keiretsu) and less successful owner-managed firms tended to access the public debt markets. We offer a number of interpretations of these results in light of the theory.

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File URL: http://www.nber.org/papers/w4421.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4421.

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Date of creation: Aug 1993
Handle: RePEc:nbr:nberwo:4421
Note: CF ME
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Find related papers by JEL classification:

  • G3 - Financial Economics - - Corporate Finance and Governance
  • G2 - Financial Economics - - Financial Institutions and Services

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  1. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  2. Stein, Jeremy C., 1992. "Convertible bonds as backdoor equity financing," Journal of Financial Economics, Elsevier, vol. 32(1), pages 3-21, August.
  3. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
  4. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
  5. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-1493, December.
  6. Alan J. Auerbach, 1985. "Real Determinants of Corporate Leverage," NBER Chapters,in: Corporate Capital Structures in the United States, pages 301-324 National Bureau of Economic Research, Inc.
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  8. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
  9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
  10. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126 National Bureau of Economic Research, Inc.
  11. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 407-443.
  12. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
  14. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1989. "Bank monitoring and investment: evidence from the changing structure of Japanese corporate banking relations," Finance and Economics Discussion Series 86, Board of Governors of the Federal Reserve System (U.S.).
  15. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
  16. Steven N. Kaplan, 1992. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S," NBER Working Papers 4065, National Bureau of Economic Research, Inc.
  17. Hsieh, P.S. & Wells, R., 1992. "The Japanese financial market: evidence on firm financing choice and investment after deregulation," Discussion Paper Series In Economics And Econometrics 9222, Economics Division, School of Social Sciences, University of Southampton.
  18. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  19. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  20. Blackwell, David W. & Kidwell, David S., 1988. "An investigation of cost differences between public sales and private placements of debt," Journal of Financial Economics, Elsevier, vol. 22(2), pages 253-278, December.
  21. Steven Kaplan & Bernadette Minton, 1993. "'Outside' Intervention in Japanese Companies: Its Determinants and Implications for Mangers," NBER Working Papers 4276, National Bureau of Economic Research, Inc.
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