The Choice between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan

47 Pages Posted: 6 Jul 2004 Last revised: 1 Aug 2022

See all articles by Takeo Hoshi

Takeo Hoshi

University of California at San Diego; National Bureau of Economic Research (NBER)

Anil K. Kashyap

University of Chicago, Booth School of Business; National Bureau of Economic Research (NBER); Federal Reserve Bank of Chicago

David S. Scharfstein

Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

Date Written: August 1993

Abstract

As a result of deregulation, there was a dramatic shift during the 1980s in Japan away from bank debt financing towards public debt financing: in 1975, more than 90% of the corporate debt of public companies was bank debt; in 1992 it was less than 50%. This paper presents a theory of the choice between bank debt and public debt and then examines the theory using firm level data on borrowing sources in Japan. We find that high net worth companies are more prone to use public debt. We also find that the more successful members of industrial groups (or keiretsu) and less successful owner-managed firms tended to access the public debt markets. We offer a number of interpretations of these results in light of the theory.

Suggested Citation

Hoshi, Takeo and Kashyap, Anil K. and Scharfstein, David S., The Choice between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan (August 1993). NBER Working Paper No. w4421, Available at SSRN: https://ssrn.com/abstract=227327

Takeo Hoshi (Contact Author)

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Anil K. Kashyap

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David S. Scharfstein

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