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The evolution of capital structure and debt governance: Evidence from private equity-backed companies in Japan

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  • Iioka, Yasutake
  • Yamada, Yuji

Abstract

This study aims to clarify how leverage is effectively utilized in private equity (PE)-backed buyouts by investigating the empirical performance of PE investment in Japan as an emerging yet growing PE market. Based on data on PE-backed buyouts in Japan, we show that the capital structure of post-buyout companies changes towards higher leverage, and that a relatively higher level of leverage is observed for public-to-private deals and/or buyouts by PE firms with higher reputations. Moreover, the more leverage an investee company has, the more disciplined the management is while a PE firm secures the post-buyout investment return. We conclude that the level, determinants, and functions of the leverage of investee companies are influenced by attributes of individual deals, as well as the financial system and/or corporate culture of companies.

Suggested Citation

  • Iioka, Yasutake & Yamada, Yuji, 2023. "The evolution of capital structure and debt governance: Evidence from private equity-backed companies in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000835
    DOI: 10.1016/j.pacfin.2023.102017
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    More about this item

    Keywords

    Private equity; Capital structure; Leveraged buyout; Debt governance; Recapitalization; Propensity score matching;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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