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The Japanese Cost of Finance: A Survey


  • Jeffrey A. Frankel


The extensive literature on whether the cost of capital is low in Japan is surveyed in this paper. Along the way, it considers: the leverage of Japanese firms, dividend payout, equity price/earnings ratios, corporate taxation, cross-ownership, land price/rental ratios, speculative bubbles, the household saving rate, international capital mobility, the lower cost of financing investment internally and through "main bank" relationships, and the move to a more market-oriented system as these relationships break down. The conclusion that emerges from the literature is that the cost of finance was indeed lower in Japan in the 1980s than in the United States, by a variety of measures. But trends of domestic and international liberalization, followed by the events of 1990, have now raised the cost of capital in Japan to the U.S. market level.

Suggested Citation

  • Jeffrey A. Frankel, 1991. "The Japanese Cost of Finance: A Survey," Financial Management, Financial Management Association, vol. 20(1), Spring.
  • Handle: RePEc:fma:fmanag:frankel91

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    Cited by:

    1. Jeffrey A. Frankel, 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Chapters,in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 53-88 National Bureau of Economic Research, Inc.
    2. Anderson, Christopher W. & K. Makhija, Anil, 1999. "Deregulation, disintermediation, and agency costs of debt: evidence from Japan," Journal of Financial Economics, Elsevier, vol. 51(2), pages 309-339, February.

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