The Debt-Equity Choice of Japanese Firms

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

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Debt-equity choice; Pecking Order Theory; Market Timing Theory; Trade-Off Theory. (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2016-04-13
New Economics Papers: this item is included in nep-cfn and nep-sea
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:80561

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