The Long-Term Stability of Corporate Capital Structure: Evidence from Japanese Firms

Abstract

This paper attempts to examine whether there exists long-term stability of corporate leverage among Japanese firms, following the study of Lemmon, Roberts and Zender (2008) who find that US firms exhibit the remarkable long-term stability of leverage. The obtained results show that the leverage cross-sections of Japanese firms are also stable for a long time. Specifically, firms with relatively high (low) leverage continue to exhibit relatively high (low) leverage for twenty years. The results indicate that the theory of capital structure should incorporate permanent, time-invariant factors as important determinants of corporate capital structure. We also obtain the additional evidence that loans from commercial banks contribute to the stability of leverage considerably for Japanese firms.

Keywords: leverage, persistence, capital structure, permanent component, bank loans

JEL Classification: G32, G30