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Financial Constraints in Intangible Investments: Evidence from Japanese firms

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  • MORIKAWA Masayuki

Abstract

This paper uses Japanese firm-level data to analyze empirically the financial constraints in intangible investments. We estimate investment functions in which cash flow is used as a key explanatory variable. We then observe differences in the sensitivity of investments to cash flow by the type of assets, industry, firm size, and firm age. According to the estimation results, investments in intangible assets are more sensitive to internal capital compared with investments in tangible assets, suggesting the existence of market failure in the financial markets. This market failure is more serious for small- and medium-sized enterprises (SMEs) and young firms. However, policies to promote investments are concentrated on tangible assets, with the exception of research and development (R&D) investment. This paper suggests that investment tax credits and financial support for SMEs and young firms should focus more on intangible investments.

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Bibliographic Info

Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12045.

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Length: 26 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:eti:dpaper:12045

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References

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  1. Steve Bond & Alexander Klemm & Rain Newton-Smith & Murtaza Syed & Gertjan Vlieghe, 2004. "The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment," IFS Working Papers W04/12, Institute for Fiscal Studies.
  2. MIYAGAWA Tsutomu & Keun LEE & KABE Shigesaburo & Junhyup LEE & Hyoungjin KIM & YoungGak KIM & EDAMURA Kazuma, 2010. "Management Practices and Firm Performance in Japanese and Korean Firms -An Empirical Study Using Interview Surveys-," Discussion papers 10013, Research Institute of Economy, Trade and Industry (RIETI).
  3. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  4. Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2007. "What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain's Productivity Record Revisited," Working Papers 603, Queen Mary, University of London, School of Economics and Finance.
  5. Czarnitzki, Dirk & Binz, Hanna L., 2008. "R&D Investment and Financing Constraints of Small and Medium-Sized Firm," ZEW Discussion Papers 08-047, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2008. "Credit constraints and the cyclicality of R&D investment: Evidence from France," PSE Working Papers halshs-00586744, HAL.
  7. Brown, James R. & Petersen, Bruce C., 2009. "Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 971-984, May.
  8. Hyunbae CHUN & FUKAO Kyoji & HISA Shoichi & MIYAGAWA Tsutomu, 2012. "Measurement of Intangible Investments by Industry and Its Role in Productivity Improvement Utilizing Comparative Studies between Japan and Korea," Discussion papers 12037, Research Institute of Economy, Trade and Industry (RIETI).
  9. Emanuela Marrocu & Raffaele Paci & Marco Pontis, 2012. "Intangible capital and firms' productivity," Industrial and Corporate Change, Oxford University Press, vol. 21(2), pages 377-402, April.
  10. Becker, Johannes & Riedel, Nadine, 2012. "Cross-border tax effects on affiliate investment—Evidence from European multinationals," European Economic Review, Elsevier, vol. 56(3), pages 436-450.
  11. Chen, Huafeng (Jason) & Chen, Shaojun (Jenny), 2012. "Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series," Journal of Financial Economics, Elsevier, vol. 103(2), pages 393-410.
  12. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
  13. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, vol. 95(7), pages 691-707.
  14. Nazim Belhocine, 2009. "Treating Intangible Inputs as Investment Goods: the Impact on Canadian GDP," IMF Working Papers 09/240, International Monetary Fund.
  15. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, 02.
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