Determinants of Capital Structure: Insights from Japanese Private Firms

This study examines the capital structure of Japanese private firms. Using a dataset over a period of more than thirty years, the study shows that the leverage ratios of private firms remain stable over the long term and exhibit greater persistence than do those of public firms. Regression analysis shows that the firms’ future leverage ratios are significantly positively related to initial leverage ratios. Most of the variation in leverage ratios can be explained by unobservable factors. Private firms are found to have a significantly higher leverage ratio than public firms. Adjustment to the target leverage ratio is slower for private firms than for public firms, reflecting the high adjustment costs of the former.