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Heterogeneity of Capital Stocks in Japan: Classification by Factor Analysis

  • Konomi Tonogi

    (Kanagawa University)

  • Jun-ichi Nakamura

    (Hitotsubashi University)

  • Kazumi Asako

    (Hitotsubashi University)

This paper examines the heterogeneity of capital stocks using financial statement data of publicly listed Japanese firms. We conduct factor analysis on investment rates among various capital goods and estimate factor loadings of each as its reactions to common factors like total factor productivity (TFP) shocks. Then we estimate the uniqueness for each investment rate, which is the percentage of its variance that is not explained by the common factors. If the estimated factor loadings are similar between some of the heterogeneous capital goods, it may well imply that the adjustment cost structure of these investments is also similar. Further, if some of the estimated values of uniqueness are small, it suggests that certain theoretical models may track the dynamics of the investment rates well. Our estimation results show that Building and Structure have similar factor loadings as do Machinery & Equipment, Vehicles & Delivery Equipment, and Tools, Furniture, & Fixture. This suggests that we could remedy the Curse of Dimensionality by bundling the investments that have similar factor loadings together and that identifying the functional structures of each group of capital goods can greatly improve the performance of empirical investment equations.

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Article provided by ScientificPapers.org in its journal Journal of Knowledge Management, Economics and Information Technology.

Volume (Year): 4 (2014)
Issue (Month): 2 (April)
Pages: 10

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Handle: RePEc:spp:jkmeit:1445
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  1. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  2. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  3. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
  4. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, vol. 15(3), pages 373-394, March.
  5. Yoshikawa, Hiroshi, 1980. "On the "q" Theory of Investment," American Economic Review, American Economic Association, vol. 70(4), pages 739-43, September.
  6. Connor, Gregory & Korajczyk, Robert A., 1988. "Risk and return in an equilibrium APT : Application of a new test methodology," Journal of Financial Economics, Elsevier, vol. 21(2), pages 255-289, September.
  7. 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.
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