Factors inhibiting Japanese firms from zero leverage: financial constraints and bank relationships

Abstract

The objective of our paper is to clarify the factors that inhibit Japanese firms from being unlevered, focusing on the interactions between financial constraints and bank relationships. Through analysis of variance, logistic regressions, and sensitivity analyses, we conclude that financial constraints and bank shareholdings, which inhibit firms from being unlevered, are more powerful than the presence of foreign investors that encourage unleverage. Based on our panel data on 822 Japanese public firms, we find that among developed countries, Japan has the fewest unlevered firms, with less than 5%. Additionally, we observe reciprocal cross stock holdings between unlevered firms and their banks.

Preserving and Exercising Financial Flexibility in the Global Financial Crisis Period: The Japanese Example

“…In practice, however, Japanese public firms leave debts outstanding despite ample cash to repay them. One of the reasons for this behavior is, as Takami ( ) argues, the fact that bank relationships are generally strong, through cross shareholding or the main bank system, and zero or low leverage is unusual. Unlike in the D&D model, Japanese business practice is characterized by sustained efforts to maintain good bank relationships through loan balances.…”

“…Lowlev it– 1 and Cash it −1 denote the financial flexibility variables in the flexibility preservation phase. Lowlev it −1 indicates the number of years of persistent low leverage, up to t – 1, which implies a debt policy where the ratio of interest‐bearing debt to total assets is less than 20% (Minton & Wruck, ; Takami, ). On the other hand, a cash policy (which is defined as a ratio of cash balance to total assets at year t – 1) is difficult to manage compared to a debt policy because of the volatile nature of cash balances As explained in note 3, this study analyzed other control variable candidates in x , but most of them were insignificant.…”

“…According to the authors, while firms in the United States and United Kingdom access the capital market for funds, those in Italy, France, and Japan resort to bank loans, thus increasing their leverage. Moreover, Takami ( ) argues that low‐ or zero‐leverage firms are, if anything, the exception in Japan, where firms pursue long‐term relationships with banks under the main bank system. Based on these arguments, the policy of increasing debt capacity might have a minimal effect on external funding when abnormal cash shortfalls occur.…”

Rentabilidade e alavancagem conservadora de empresas brasileiras

“…Diante disso, esta pesquisa procura fornecer evidências empíricas no contexto do Brasil como país emergente, escolhido por seu contexto divergir dos estudos anteriores, que investigaram países desenvolvidos, como Estados Unidos, Japão e países europeus (Strebulaev & Yang, 2013;Takami, 2016;Morais et al, 2021). Dessa forma, uma das justificativas deste estudo é o desenvolvimento da literatura empírica que trata sobre alavancagem conservadora e a rentabilidade em empresas de países emergentes, como o Brasil.…”

Corporate Social Responsibility and Zero Leverage

“…There is an increasing tendency among firms towards ZL globally (Bessler et al, 2013). A good number of zeroleverage firms are found in the UK, USA (Strebulaev & Yang, 2013;Zhang & Gregoriou, 2019), India (Ghose & Kabra, 2016), China (Huang et al, 2017), and Japan (Takami, 2016) and others (El Ghoul et al, 2018). El Ghoul et al (2018) added that zero-leverage is increasing both in developed and developing countries persistently.…”