Corporate fund raising and capital structure in Japan during the 1980s and 1990s

This study examines the fund raising and capital structure decisions of Japan's non-financial corporations during the 1980s and 1990s. The sustained macroeconomic problems of the last decade created a unique opportunity to observe the Japanese system under entirely different economic conditions, and also to evaluate the response of Japan's keiretsu system to long-term macroeconomic stress.; The first part of this study is a descriptive analysis of the fund raising practices of Japan's nonfinancial corporations. A main finding of this section is the uniform decline in bank loans as a source of corporate finance during the period of analysis. Other related developments include the sharply rising popularity of equity-linked bonds during the boom years followed by a comparable decline afterwards, and the significant rise in internal funding after the crash of December 1989.; The second part of this study is on financial leverage. It is conducted both at the descriptive and the regression levels. To this end, 361 non-financial Japanese corporations listed on the Tokyo Stock Exchange are followed from 1984 through 1998. The regression analyses utilize two-way, fixed effects panel data techniques, and differentiate between keiretsu and non-keiretsu firms as well as pre-crash and post-crash periods.; The main findings of the second part include the uniform significance of both internally generated cash flows and business risk in influencing Japanese corporations' overall financial leverage. In contrast, the amount of fixed assets owned by Japanese corporations does not seem to have any direct effect on financial leverage. Other variables, such as growth opportunities and firm size, appear to have more influence over the maturity structure of leverage rather than its overall level.; At the regression level, the crash is observed to affect corporate leverage levels both through the intercept and the joint slope parameters of leverage functions. On the other hand, the contemporaneous differences between keiretsu and non-keiretsu firms appear to be due to different intercept terms (which comprise company-specific and time-specific components) rather than any dissimilarity in the joint slope parameters.