Abstract
The objective of our paper is to clarify the factors that inhibit Japanese firms from being unlevered, focusing on the interactions between financial constraints and bank relationships. Through analysis of variance, logistic regressions, and sensitivity analyses, we conclude that financial constraints and bank shareholdings, which inhibit firms from being unlevered, are more powerful than the presence of foreign investors that encourage unleverage. Based on our panel data on 822 Japanese public firms, we find that among developed countries, Japan has the fewest unlevered firms, with less than 5%. Additionally, we observe reciprocal cross stock holdings between unlevered firms and their banks.
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