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Entrepreneurship and capital investment: another explanation for the slump in capital investment under deflation

Author

Listed:
  • Shin-ichi Fukuda

    (Professor, Graduate School of Economics, the University of Tokyo)

  • Munehisa Kasuya

    (Professor, Department of Economics, Meisei University)

  • Masayuki Keida

    (Associate Professor, Faculty of Economics, Rissho University)

Abstract

This study investigates the factors behind the slump in capital investment by listed companies in the deflationary Japanese economy. We estimate the investment function using information on the attributes of top managers as well as corporate financial data. We find that in addition to Tobin’s q and cash flow, several manager-attributes significantly affect each listed company’s capital investment. These attributes are the president’s career and age, whether or not he/she is an owner president, and the ratio of director bonuses to the distribution of profits. Compared to small- and medium-sized companies, listed companies have various financing methods. Thus, even during a financial crisis, the financial restrictions on their capital investment would be relatively moderate. Our results suggest that after the collapse of the bubble economy, in addition to the deterioration of companies’ fundamentals, the changes in the stance of top managers in listed companies may have caused a reduction in capital investment in Japan.

Suggested Citation

  • Shin-ichi Fukuda & Munehisa Kasuya & Masayuki Keida, 2018. "Entrepreneurship and capital investment: another explanation for the slump in capital investment under deflation," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(3), pages 489-510, July.
    • Handle: RePEc:mof:journl:ppr14_03_05
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    References listed on IDEAS

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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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