A Reexamination of the Unique Features of Japan's Corporate Financial Structure A Comparison of Corporate Balance Sheets in Japan and the United States

This report presents a reexamination, by means of a comparison of Japanese and United States corporate balance sheets, of concepts that have come to be regarded as the most remarkable features of corporate finance in Japan — namely (1) a low net-worth ratio (the predominance of borrowed capital) and (2) a high degree of dependency on financial institutions (the predominance of indirect financing) — as a preliminary to any analysis of the structure of corporate finances and corporate behaviors in Japan. (1) We have three major findings as follows: (1) The conventional method of comparison between the two countries is superficial and one-sided, and needs to be modified. There are major differences between Japan and the United States in corporations' hidden assets, sources of funds via leases and subsidiary finance companies, and the terms of flotation and routes of sales of corporate debentures. In undertaking a comparative study of special features of the financial structures of the two countries based on corporate balance sheets, one has to make adjustments for such differences.