Inefficiency of corporate investment and distortion of savings behavior in Japan

Ando, A., Christelis, D. and Miyagawa, T. (2003) Inefficiency of corporate investment and distortion of savings behavior in Japan. In: Blomström, M., Corbett, J., Hayashi, F. and Kashyap, A. (eds.) Structural Impediments to Growth in Japan. Series: National Bureau of Economic Research conference report. University of Chicago Press: Chicago, pp. 155-190. ISBN 9780226060217 (doi:10.7208/chicago/9780226060231.003.0007)

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Abstract

The value of corporate equity in Japan is dramatically smaller than that implied by the sum of the reproduction cost of accumulated investment and the market value of land owned by corporations (that is, the Tobin’s average “q” is much smaller than unity). This condition has persisted at least since l965, and the gap has become progressively larger over time. It appears to result from the very low rate of return earned on corporate investment and also from the extraordinarily small and stagnant dividend payments. This last feature, in turn, appears to be associated with an exceptionally weak position of the equity holders in the Japanese corporate governance structure. If the value of the equity of corporations were consistent with the reproduction costs of their investment, the net worth of the household sector would have been larger than its actual value by some 395 trillion yen in l998. Such an addition to household net worth would have generated additional consumption demand of at least 15 trillion yen. This paper traces the development of this disequilibrium condition over time, and explores its possible causes. In the process, we prepare an alternative estimate of the time series of the capital stock and its depreciation to those offered in the National Accounts. The basic difference is that the depreciation rates underlying our calculations are substantially lower than those used in the Japanese National Accounts, and closer to values prevailing in the United States. The qualitative characteristics of our results remain unaffected by the choice between these alternative estimates.

Item Type:Book Sections
Status:Published
Glasgow Author(s) Enlighten ID:Christelis, Dr Dimitris
Authors: Ando, A., Christelis, D., and Miyagawa, T.
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Publisher:University of Chicago Press
ISBN:9780226060217

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