The decline of bank ownership and firm’s capital structure: evidence from Japanese business groups

Izidin El Kalak, Khelifa Mazouz and Kazuo Yamada

Applied Economics, 2025, vol. 57, issue 32, 4768-4784

Abstract: This paper examine how firms adjust their capital structure when their relationship with banks weaken. To this end, we use the data from Japan, a country that has experienced a sharp decline in the traditional bank-oriented business group system after its banking crisis in the late 1990s. We document the decline of financial leverage of Japanese firms after the crisis. The dynamic GMM model reveals that the decline is pronounced as the bank’s influence weakens firm’s financial leverage decreases. Finally, we show that as the bank relationship weakens, the speed of adjustment for target leverage fastens. These results indicate that the shift of bank-oriented to market-oriented economic system change the firm’s financial decision making.

Date: 2025
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DOI: 10.1080/00036846.2024.2364092

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