The Debt Equity Choice of Japanese Firms

Authors

Terence Tai-Leung Chong, The Chinese University of Hong KongFollow
Daniel Tak Yan Law, The Chinese University of Hong Kong
Feng Yao, West Virginia University

Document Type

Working Paper

Publication Date

9-21-2013

Document Number

13-09

Department/Program/Center

Economics

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

Digital Commons Citation

Tai-Leung Chong, Terence; Tak Yan Law, Daniel; and Yao, Feng, "The Debt Equity Choice of Japanese Firms" (2013). Economics Faculty Working Papers Series. 89.
https://researchrepository.wvu.edu/econ_working-papers/89