Munich Personal RePEc Archive

The Debt-Equity Choice of Japanese Firms

Chong, Terence Tai Leung and Law, Daniel Tak Yan and Yao, Feng (2016): The Debt-Equity Choice of Japanese Firms. Published in: International Journal of Business and Society , Vol. 17, (2016): pp. 167-182.

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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.

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