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Financial Constraints in Intangible Investments: Evidence from Japanese firms

  • MORIKAWA Masayuki

This paper uses Japanese firm-level data to analyze empirically the financial constraints in intangible investments. We estimate investment functions in which cash flow is used as a key explanatory variable. We then observe differences in the sensitivity of investments to cash flow by the type of assets, industry, firm size, and firm age. According to the estimation results, investments in intangible assets are more sensitive to internal capital compared with investments in tangible assets, suggesting the existence of market failure in the financial markets. This market failure is more serious for small- and medium-sized enterprises (SMEs) and young firms. However, policies to promote investments are concentrated on tangible assets, with the exception of research and development (R&D) investment. This paper suggests that investment tax credits and financial support for SMEs and young firms should focus more on intangible investments.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12045.

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Length: 26 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:eti:dpaper:12045
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  1. Charles J. Hadlock, 1998. "Ownership, Liquidity, and Investment," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 487-508, Autumn.
  2. Dischinger, Matthias & Riedel, Nadine, 2008. "Corporate Taxes and the Location of Intangible Assets Within Multinational Firms," Discussion Papers in Economics 5294, University of Munich, Department of Economics.
  3. E. Marrocu & R. Paci & M. Pontis, 2009. "Intangible capital and firms productivity," Working Paper CRENoS 200916, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. FUKAO Kyoji & HAMAGATA Sumio & MIYAGAWA Tsutomu & TONOGI Konomi, 2007. "Intangible Investment in Japan: Measurement and Contribution to Economic Growth," Discussion papers 07034, Research Institute of Economy, Trade and Industry (RIETI).
  5. Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2009. "What Happened To The Knowledge Economy? Ict, Intangible Investment, And Britain'S Productivity Record Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 686-716, 09.
  6. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, 02.
  7. Hall, Bronwyn H., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Department of Economics, Working Paper Series qt5j59j6x3, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Stephen Bond & Alexander Klemm & Rain Newton-Smith & Murtaza Syed & Gertjan Vlieghe, 2004. "The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment," Bank of England working papers 222, Bank of England.
  9. Aghion, Philippe & Askenazy, Philippe & Berman, Nicolas & Cette, Gilbert & Eymard, Laurent, 2012. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Scholarly Articles 12490632, Harvard University Department of Economics.
  10. Nicholas Bloom & Christos Genakos & Raffaella Sadun & John Van Reenen, 2011. "Management Practices Across Firms and Countries," CEP Discussion Papers dp1109, Centre for Economic Performance, LSE.
  11. Brown, James R. & Petersen, Bruce C., 2009. "Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 971-984, May.
  12. Johannes Becker & Nadine Riedel, 2008. "Cross-Border Tax Effects on Affiliate Investment - Evidence from European Multinationals," Working Papers 0816, Oxford University Centre for Business Taxation.
  13. Nazim Belhocine, 2009. "Treating Intangible Inputs As Investment Goods: The Impacton Canadian GDP," IMF Working Papers 09/240, International Monetary Fund.
  14. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  15. Hyunbae CHUN & FUKAO Kyoji & HISA Shoichi & MIYAGAWA Tsutomu, 2012. "Measurement of Intangible Investments by Industry and Its Role in Productivity Improvement Utilizing Comparative Studies between Japan and Korea," Discussion papers 12037, Research Institute of Economy, Trade and Industry (RIETI).
  16. MIYAGAWA Tsutomu & Keun LEE & KABE Shigesaburo & Junhyup LEE & Hyoungjin KIM & YoungGak KIM & EDAMURA Kazuma, 2010. "Management Practices and Firm Performance in Japanese and Korean Firms -An Empirical Study Using Interview Surveys-," Discussion papers 10013, Research Institute of Economy, Trade and Industry (RIETI).
  17. Bronwyn H. Hall & Josh Lerner, 2009. "The Financing of R&D and Innovation," NBER Working Papers 15325, National Bureau of Economic Research, Inc.
  18. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
  19. Czarnitzki, Dirk & Binz, Hanna L., 2008. "R&D Investment and Financing Constraints of Small and Medium-Sized Firm," ZEW Discussion Papers 08-047, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  20. Chen, Huafeng (Jason) & Chen, Shaojun (Jenny), 2012. "Investment-cash flow sensitivity cannot be a good measure of financial constraints: Evidence from the time series," Journal of Financial Economics, Elsevier, vol. 103(2), pages 393-410.
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