The Role of ESG Performance in the Capital Structure-Market Competition Nexus: Some Evidence from Japan

Abstract

This study investigates the relationship between market competition and capital structure and the respective role of ESG performance. Using 5112 firm-year observations from firms listed on the Tokyo Stock Exchange between 2002 and 2020, we document a negative relationship between market competition and capital structure. Also, we find that ESG performance moderates this relationship. Our findings support the “deep pocket” theory of predation and emphasize the benefits of a superior ESG performance.