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Investment Behaviors by Capital Good and Enterprise Size: Testing Capital Goods Heterogeneity and Capital Market Imperfection with the FSSCI

Author

Listed:
  • Jun-ichi Nakamura

    (General Manager, Research Institute of Capital Formation, Development Bank of Japan)

  • Konomi Tonogi

    (Assistant Professor at the Faculty of Economics, Rissho University)

  • Kazumi Asako

    (Professor at the Faculty of Economics, Rissho University, Professor Emeritus in Hitotsubashi University)

Abstract

This paper examines the validity of the Multiple q model, an augmented version of the Tobin fs q theory to consider the heterogeneity of capital goods, using individual firm data which includes small and medium - sized enterprises as well as large ones. We divide capital goods into land and non - land tangible fixed assets, taking into account the imperfection of the capital market, and estimate the Multiple q investment equations by corporate size based on FY 2004 - 2013 annual survey slips of the Financial Statements Statistics of Corporations by Industry (FSSCI) collected by the Ministry of Finance, Japan. Our estimation results show that, irrespective of enterprise size, land itself should be treated as an independent capital good that incurs unique adjustment costs as confirmed by earlier studies on publicly listed Japanese firms, indicating the validity of the Multiple q model by considering explicitly the heterogeneity between land and non - land tangible fixed assets. However, at the same time, we find that variables such as debt ratio and tangibility that are considered as redundant under the standard Tobin fs q theory have significant explanatory power and that there are lumpy investment behaviors that cannot be handled by a smooth adjustment cost function presumed for the Tobin fs q theory. Our estimation results also suggest that the lumpiness of investment behaviors is higher for smaller firms and that capital market imperfection would constrain some lumpy investments.

Suggested Citation

  • Jun-ichi Nakamura & Konomi Tonogi & Kazumi Asako, 2017. "Investment Behaviors by Capital Good and Enterprise Size: Testing Capital Goods Heterogeneity and Capital Market Imperfection with the FSSCI," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 13(2), pages 71-102, October.
    • Handle: RePEc:mof:journl:ppr13_02_01
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    References listed on IDEAS

    as
    1. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
    2. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
    3. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-273, March.
    4. Laura Power, 1998. "The Missing Link: Technology, Investment, And Productivity," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 300-313, May.
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    Cited by:

    1. Jun-ichi Nakamura, 2018. "Corporate Financial Surpluses and Allocation of Internal Cash Flow in Japan: Microdata Analysis by Enterprise Size Based on Financial Statements Statistics of Corporations by Industry," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(3), pages 397-432, July.

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    More about this item

    Keywords

    capital investment; capital goods heterogeneity; Multiple q; capital market imperfection; lumpy investment;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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