Spare Debt Capacity: Company Practices in Australia, Britain and Japan

The paper reports the residis of an investigation of the extent to which a sample of listed Australian, British and Japanese companies maintain spare borrowing capacity. Unused debt capacity is not directly observable and can be in various forms, including committed and uncommitted lines of credit or a level of borrowing that is, substantially below an upper limit. Some 60% of Australian, 90% of British and 32% of the Japanese respondents follow this policy. Regression analyses suggest that spare borrowing capacity is linked to company size, proxies for the proportion of company value in intangible form, and upper limits on borrowings.