The nonlinear effect of foreign ownership on capital structure in Japan: A panel threshold analysis

Abstract

This study scrutinizes the nonlinear relationship between foreign ownership and corporate leverage decisions by applying a panel threshold model to a sample that comprises a balanced panel data set of 1027 Japanese firms. Moreover, this study investigates whether a threshold for the level of foreign ownership moderates the effect of determinants on capital structure. The empirical findings support the existence of a threshold effect for foreign ownership on corporate capital structure and its determinants. Furthermore, our findings have managerial implications for foreign investors with a high level of ownership in that they should mainly use liquidity, profitability, and growth to reduce leverage. 2021