What Makes Listed Subsidiaries Delist in Japan? A Logistic Analysis

Abstract

We examine the driving factors behind the decisions of parent companies to delist their listed subsidiaries in Japan. We undertake a logistic regression analysis and find that higher leverage, lower capital expenditure to total assets, and lower return on assets are significantly related to the probability of delisting. The market-to-book ratio is not statistically significant in the logistic regression. We find no evidence that the parent company takes advantage of market mispricing. The parent company may intend to place the extra debt of highly levered subsidiaries on its own balance sheet to obtain a better term in its debt contract.