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Contribution of R&D capital to differences in Tobin's q among Japanese manufacturing firms: Evidence from an investment-based asset pricing model

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  • Suzuki, Kazuyuki
  • Chida, Ryokichi

Abstract

We explain the differences in Tobin's q among Japanese manufacturing firms after the bubble burst in the early 1990s based on their physical and R&D capital investment. We calculate (estimate) the contribution of each block of physical and R&D capital investment to explain differences in Tobin's q by estimating each capital's unit's shadow values and their contributions to the differences in the realized Tobin's q. The steady growth of R&D capital after the bubble burst increased the R&D capital relative to the physical capital. The combined effect of this relative stock ratio and R&D capital's shadow value explain the high Tobin's q in highly R&D intensive firms. Conversely, Tobin's q is an inappropriate measure of physical capital investment in such highly R&D intensive firms.

Suggested Citation

  • Suzuki, Kazuyuki & Chida, Ryokichi, 2017. "Contribution of R&D capital to differences in Tobin's q among Japanese manufacturing firms: Evidence from an investment-based asset pricing model," Journal of the Japanese and International Economies, Elsevier, vol. 43(C), pages 38-58.
  • Handle: RePEc:eee:jjieco:v:43:y:2017:i:c:p:38-58
    DOI: 10.1016/j.jjie.2016.12.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset pricing model; Tobin's q; R&D capital; Factor adjustment costs: growth options;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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