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TABLE OF CONTENTS INTRODUCTION Capital structure in Japan has been noted to be more highly leveraged than comparative North American firms which brings to mind the question how is it that Japanese firms have been able to take on such high levels of debt The answer lies in the environment that Japanese firms have been operating in More specifically the levels of debt are likely to have been induced by the lack of alternative sources of finance because of the effect of government regulations and the different ownership structure in Japanese firms with institutional lenders being major equity holders So the higher leverage has been a consequence of the conditions that Japanese business facewith a more pronounced effect due to relationships in companies which are in corporate groups known as keiretsu These conditions were characteristic of the past As the benefits of debt are well known in finance theory tax shields signaling etc the lack of independence and efficiency in decision making borne by Japanese managers seem to be the costs The result for some firms has been a reduction in debt levels to those more resembling US companies The questions now have become What is the optimal debt level for a Japanese firm Should firms still be taking advantage of the benefits of their keiretsu relationship that have allowed them to take on such levels of debt Our analysis focuses on Mitsubishi Corporation a core conglomerate that is part of the larger Mitsubishi Group keiretsu having the capital structure characteristics mentioned above The report will first explore the circumstances that may have induced Mitsubishi to its present capital structure then look at more recent events and trends that may affect future financing decisions and conclude with the Mitsubishi capital structureoptimum debt level analysis KEIRETSU AND THE JAPANESE CORPORATION Japanese corporations have outpaced rival firms in the US and Europe in terms of capital investment throughout the 1970s and into the 1980s
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