Preserving and Exercising Financial Flexibility in the Global Financial Crisis Period: The Japanese Example

摘要

This article examines whether Japanese firms replicate the DeAngelo and DeAngelo (D&D) model, which assumes that firms achieve financial flexibility by increasing their debt capacity or paying out large dividends and exercise it when abnormal cash shortfalls occur. The article analyzes frequency distributions and means across three net cash outlay states (extreme deficits, deficits, and surplus) using 10-year panel data on 1,555 Japanese firms. It also conducts Tobit regression analyses based on the dynamic features of financial flexibility postulated by D&D. The results reveal that Japanese public firms did not effectively utilize financial flexibility to raise external funds in times of financial need, particularly during the global financial crisis sparked by the Lehman Brothers collapse in 2008. This article therefore concludes that the D&D model does not fit the data. Further, the results imply that although Japanese public firms may have virtually no debt, their motive is not to achieve financial flexibility, but to maintain bank relationships through cross shareholding or the main bank system. This is the first study to directly test the D&D model, showing that it cannot be generalized, particularly in the case of Japan, where the relationships between firms and banks are strong.