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Allocative Efficiency of Capital across Japanese Firms

Author

Listed:
  • Kenichi UEDA

    (Graduate School of Economics and Graduate School of Public Policy, The University of Tokyo)

  • Khaliun Dovchinsuren

    (Graduate School of Public Policy, The University of Tokyo)

Abstract

Using the firm-level information of the Financial Statements of Corporations by Industry compiled annually by the Japanese Ministry of Finance, we gauge the allocative efficiency of capital across non-financial firms from 1983 to 2017. We carefully correct the biases stemming from changes in the sampling methodology over the years. We then estimate dispersion in the return on assets (EBIT/total assets) across firms each year, controlling for differences in growth expectations and risks by regressions. Capital allocation rapidly became inefficient around the time when the economic bubbles burst. The degree of inefficiency seems to have stabilized at a high level afterwards, but recently, it appears to be deteriorating again. Moreover, we find that cash and deposit holdings at the firm level have nothing to do with the deteriorating trend of allocative efficiency of capital. Rather, it is estimated to increase the return.

Suggested Citation

  • Kenichi UEDA & Khaliun Dovchinsuren, 2020. "Allocative Efficiency of Capital across Japanese Firms," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 16(7), pages 1-22, October.
    • Handle: RePEc:mof:journl:ppr16_07_01
    as

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    References listed on IDEAS

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    1. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
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    4. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
    5. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    6. Claessens, Stijn & Ueda, Kenichi & Yafeh, Yishay, 2014. "Institutions and financial frictions: Estimating with structural restrictions on firm value and investment," Journal of Development Economics, Elsevier, vol. 110(C), pages 107-122.
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    Cited by:

    1. Hoshi, Takeo & Kawaguchi, Daiji & Ueda, Kenichi, 2023. "Zombies, again? The COVID-19 business support programs in Japan," Journal of Banking & Finance, Elsevier, vol. 147(C).

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    More about this item

    Keywords

    capital allocation across firms; allocative efficiency of capital; cash and deposit holdings by firms;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G3 - Financial Economics - - Corporate Finance and Governance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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