We Are Alike: Capital Structure of Japanese SMEs Across Prefectures

Author Name Huseyin OZTURK (Central Bank of the Republic of Turkey) / YASUDA Yukihiro (Hitotsubashi University)
Creation Date/NO. November 2021 21-E-092
Research Project Study Group on Corporate Finance and Firm Dynamics
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We empirically investigate the capital structure of small- and medium-sized enterprises (SMEs) in Japan to identify whether the firm-specific determinants of leverage exhibit locational differences. Examining this theme in the context of Japanese geography is important because the country has considerable difference, especially in terms of its demography, capital intensity, and industrial structure. Akin to previous studies that have examined the impacts of firm-specific determinants on the capital structure of firms between geographies, our results indicate differences between Japanese prefectures. However, when we conduct an in-depth test of prefecture pairs, we interestingly find that the impact of the firm-specific determinants of leverage does not greatly differ between prefecture pairs in terms of both sign and magnitude. We briefly discuss why this might be an important finding for policy-making, given the recent policy responses to the COVID 19 pandemic.