The nexus between debt structure, firm performance, and the financial crisis: non-linear panel data evidence from Japan

Abstract

This study seeks to analyze the non-linear relationship between a firm's debt structure and performance based on evidence from Japan through the use of a panel data fixed effects model for a sample of 1,670 listed firms. This is the first study that looks at the effect of the short-term debt threshold on corporate performance, as well as the influence of the 2008 global financial crisis (GFC) on the nonlinear effect of debt structure on corporate performance. Moreover, it represents an initial endeavor that uses cross-industry comparisons to scrutinize the nonlinear effect of debt structure on the performance of Japanese companies. This study's findings reveal the presence of a nonlinear impact of debt with short-term maturity on corporate performance. In addition, there is a U-shaped relationship between firm performance and short-term debt, suggesting that a firm's profit decreases at lower levels of short-term debt (below 45.2%) and increases at higher levels of debt with short-term maturity. Moreover, this short-term debt threshold was affected significantly by the financial crisis. 2022 Informa UK Limited, trading as Taylor & Francis Group.