Why Did the Debt Maturity of the Japanese Firms Get Longer H: A Preliminary Investigation

As Japanese firms have reduced the proportion of debts in their capital structures, they have also increased their debt maturities. Since the shorter debt maturity is more costly for the firms of poor performance, it is argued that the maturity length plays the role of signal as the theoretical model of Flannery (1986) and Diamond (1991, 1993) suggest. Using Financial Statements Statistics of Corporations by Industry (FSSCI) data, I examine if the story that both total amount of debt and the debt maturity choice serve as signaling devices of borrower firms, an extension of the signaling model of the choice of debt maturity. At least for the non-manufacturing industry sample, it is confirmed that there is a clear correlation between corporate performance and the reduction of corporate borrowings. On the other hand, when the growth rates of the total debt are at the similar level, the industries that have better performance measured by ROA are more prone to increase or less aggressive to reduce the short-term borrowings. The result of the empirical analyses is consistent with the static model of the debt maturity choice by Flannery=Diamond, when we look at the relationship between the growth rate of the short/long-term debt and ROA alone. However, when the growth rate of total debt is taken into account, significant parts of the variations in the growth rates of short-term and long-term debts remain unexplained.