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The Debt-Equity Choice of Japanese Firms

Author

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  • Chong, Terence Tai Leung
  • Law, Daniel Tak Yan
  • Yao, Feng

Abstract

Prior studies on the debt-equity choice of firms focus on capital market oriented economies. This paper examines whether firms in Japan, the world’s largest bank-oriented economy, adjust their debt-equity choice towards the target. We find that the leverage ratios of Japanese firms do adjust slowly towards their target levels. The adjustment speed has dwindled after the Asian Financial Crisis. In contrast to existing literature, we show that an increase in tangible assets reduces the leverage ratio of firms in Japan. It is also found that the effect of financial deficit is persistent while the market timing effect is not.

Suggested Citation

  • Chong, Terence Tai Leung & Law, Daniel Tak Yan & Yao, Feng, 2016. "The Debt-Equity Choice of Japanese Firms," MPRA Paper 80561, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80561
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    References listed on IDEAS

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    Cited by:

    1. Ana Rita Marques & Cátia Silva, 2018. "Assessing the Competitiveness of the Portuguese Chemical Sector," GEE Papers 0110, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Sep 2018.

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    More about this item

    Keywords

    Debt-equity choice; Pecking Order Theory; Market Timing Theory; Trade-Off Theory.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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