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Examining pecking order versus trade‐off theories of capital structure: New evidence from Japanese firms

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  • Shaif Jarallah
  • Ali Salman Saleh
  • Ruhul Salim

Abstract

This study empirically tests the traditional trade‐off model against the pecking order model of capital structure using data from the Japanese listed companies on the Tokyo Stock Exchange. A pooled sample of 1,362 publicly listed nonfinancial companies from 1991 to 2015 is used to establish the relationship between leverage and its determinants by using the generalized methods of moments econometric framework. The results show that the financing pattern of Japanese firms is consistent with the basic pecking order model, which predicts external debt financing driven by the internal financial deficit.

Suggested Citation

  • Shaif Jarallah & Ali Salman Saleh & Ruhul Salim, 2019. "Examining pecking order versus trade‐off theories of capital structure: New evidence from Japanese firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 204-211, January.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:1:p:204-211
    DOI: 10.1002/ijfe.1657
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    Cited by:

    1. Qizhi Tao & Zohaib Zahid & Azhar Mughal & Farrukh Shahzad, 2022. "Does operating leverage increase firm's profitability and bankruptcy risk? Evidence from China's entry into WTO," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4705-4721, October.
    2. Patrick Karuki Kinyua & Richard Kiai & Stephen Muriu, 2022. "Moderating effect of bank size on nexus between internal equity capital and financial performance of lower tier commercial banks in Kenya," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(6), pages 277-287, September.
    3. Georgios A. Savvakis & Dimitris Kenourgios & Theofanis Papageorgiou, 2021. "To EMU or not to EMU: Can TFP “provoke” the capital structure puzzle of SMEs?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2595-2611, April.
    4. Xiaojian Hu & Gang Yao & Taiyun Zhou, 2022. "Does ownership structure affect the optimal capital structure? A PSTR model for China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2458-2480, April.
    5. Wang, Xu & Deng, Shengliang & Alon, Ilan, 2021. "Women executives and financing pecking order of GEM-listed companies: Moderating roles of social capital and regional institutional environment," Journal of Business Research, Elsevier, vol. 136(C), pages 466-478.
    6. Richard Arhinful & Mehrshad Radmehr, 2023. "The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange," SAGE Open, , vol. 13(4), pages 21582440231, November.
    7. Feng-Li Lin, 2020. "Do DJIA Firms Reflect Stationary Debt Ratios?," Economies, MDPI, vol. 8(4), pages 1-19, September.
    8. Abdullah, Hariem & Tursoy, Turgut, 2021. "Capital structure and firm performance: a panel causality test," MPRA Paper 105871, University Library of Munich, Germany.
    9. Rishi Kapoor Ronoowah & Boopendra Seetanah, 2023. "Corporate governance, capital structure, and firm performance: a panel VAR approach," SN Business & Economics, Springer, vol. 3(1), pages 1-30, January.

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