Deregulation, disintermediation, and agency costs of debt: evidence from Japan

Many Japanese firms reduced dependence on banks following financial deregul ation in the 1980s, The financial architecture of Japanese firms after libe ralization provides an opportunity to investigate the choice of financing w ith public bonds versus monitored bank loans. Examination of accounting and stock price data for a sample of Japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agen cy costs of debt. In particular, we find that the proportion of bond debt i s inversely related to growth opportunities, while the proportion of bank d ebt is positively related to growth opportunities. (C) 1999 Elsevier Scienc e S.A. All rights reserved.