Expected Credit Spreads and Market Choice: Evidence from Japanese Bond Issuers

This study explores the impact of credit spreads—defined as the difference between corporate bond yields and matched government bond yields—and macro-financial conditions on Japanese firms’ decision-making regarding whether to issue corporate bonds in domestic or international markets. Using firm-level panel data from 2010 to 2019, we employ fixed-effects regressions to identify the determinants of credit spreads and assess their influence on issuance location. The results suggest that firms strategically opt for foreign markets when anticipating narrower spreads, despite the typically higher borrowing costs associated with overseas issuance. Sensitivity to credit spreads systematically varies with issuer characteristics—such as leverage and credit ratings—and market elements—including the United States volatility and stock performance. Interaction models further demonstrate that market selection dynamically responds to pricing signals and uncertainty. By connecting credit spread formation to venue choice, this study provides a new perspective on cross-border financing in segmented capital markets. These findings offer theoretical insights and practical implications for understanding how firms adapt their debt strategies in response to global financial conditions.