The Capital Structure of Japanese Firms: A Partial Adjustment Analysis

We study the capital structure of Japanese firms using a partial adjustment model. To ensure that our approach is well specified and, in particular, that the over-identifying restrictions associated with system GMM are not rejected, our procedure is to partition firms in a number of homogenous groups. To do that, we combine leverage and profitability. The results show that Japanese firms have adjustment speeds comparable to US firms. More interestingly, access to collateral and cash flow generating potential have a greater influence on the capital structure of highly leveraged firms. In general, the results indicate that capital structure decisions depend on firms' creditworthiness and industry segment, but not so much on their affiliation to a business group.