Economic Policy Uncertainty And Corporate Leverage Deviation: Evidence From Japan

Abstract

Japan’s corporate governance framework and regulations show how it distinguishes itself from other nations. Using a sample of 40,325 firmyear observations of firms listed on the Tokyo Stock Exchange during the period 1999-2021, this study analyzes the impact of economic policy uncertainty on the leverage deviation from target. The empirical results show an adverse relation between leverage deviation and economic policy uncertainty in Japan. Additional analysis reveals that business risk and financial constraints are this relationship's transmission channels. However, the effect of EPU on firms' leverage deviation is lessened thanks to the presence of business groups (keiretsu) and a high amount of tangible assets.