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Information, investment, and the stock market: A study of investment revision data of Japanese manufacturing industries

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  • Ogawa, Kazuo
  • Suzuki, Kazuyuki

Abstract

We examined investment behavior in the Japanese manufacturing industry using investment revision data to analyze investment behavior from a fresh angle. We tested the martingale investment hypothesis and then the q-theory of investment by looking at the response of stock return and investment to news arriving at firms. The martingale hypothesis was accepted at early stage of investment planning, but not at later stages. We also found evidence for the validity of the q-theory hypothesis. Investment was responsive to profit rate revision and sales revision, but stock return responded only to profit rate revision. Further investigation revealed that investment was also motivated by expansion of market share for sales, especially for industries with rapid technological progress. J. Japanese Int. Economies 22 (4) (2008) 663-676.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 22 (2008)
Issue (Month): 4 (December)
Pages: 663-676

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Handle: RePEc:eee:jjieco:v:22:y:2008:i:4:p:663-676

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Investment revision Martingale Stock return q theory Market share Flexible accelerator theory;

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References

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  1. Owen Lamont, . "Investment Plans and Stock Returns."," CRSP working papers 488, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Schiantarelli, F. & Georgoutsos, D., 1990. "Monopolistic competition and the Q theory of investment," European Economic Review, Elsevier, vol. 34(5), pages 1061-1078, July.
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  9. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
  10. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  11. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  12. Galeotti, Marzio & Schiantarelli, Fabio, 1991. "Generalized Q Models for Investment," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 383-92, August.
  13. Mark Schankerman, 2002. "Idiosyncratic and Common Shocks to Investment Decisions," Economic Journal, Royal Economic Society, vol. 112(482), pages 766-785, October.
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