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Corporate Leverage, Firm Characteristics and Financial Crisis

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  • Jang-Shee Barry Lin

    (Khalifa University of Science, Technology and Research)

Abstract

This paper investigates the leverage decision of Japanese firms in their corporate leverage choice by analyzing the multi-directional causal relationship among firm characteristics such as firm size, profitability, tangibility (ratio of fixed to total assets), and growth opportunity (as measured by market-to-book ratio) on firms? choice of leverage. Using corporate finance data for a large sample of Japanese firms (25,698 firm-years) between 1980 and 2000, this paper finds a highly significant and positive size effect. Tangibility positively affects total debt, but Profitability negatively affects total debt. Market valuation also positively affects total debt. Finally, profitability is positively affected by operating cash flow, growth in sales, and change in earnings. The model is applied to sub-samples before and after the Asian financial crisis and results remain broadly similar before and after the financial crisis. Our findings support the hypothesis that the firm leverage choice is driven by firm characteristics.

Suggested Citation

  • Jang-Shee Barry Lin, 2016. "Corporate Leverage, Firm Characteristics and Financial Crisis," Proceedings of International Academic Conferences 5306914, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:5306914
    as

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    File URL: https://iises.net/proceedings/27th-international-academic-conference-prague/table-of-content/detail?cid=53&iid=025&rid=6914
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Leverage; Profitability; Size effect; Market to book;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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