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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. Bronwyn H. Hall., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Economics Working Papers 92-194, University of California at Berkeley.
  2. Vlieghe, Gertjan & Stephen Bond & Alexander Klemm & Rain Newton-Smith & Murtaza Syed, 2003. "The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment," Royal Economic Society Annual Conference 2003 212, Royal Economic Society.
  3. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2003. "Investment, R&D and Financial Constraints in Britain and Germany," CEP Discussion Papers dp0595, Centre for Economic Performance, LSE.
  4. Kyoji Fukao & Tsutomu Miyagawa & Kentaro Mukai & Yukio Shinoda & Konomi Tonogi, 2009. "Intangible Investment In Japan: Measurement And Contribution To Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 717-736, 09.
  5. 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.
  6. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 691-707, August.
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  9. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," MERIT Working Papers 012, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  10. 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).
  11. 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).
  12. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
  13. Dirk Czarnitzki & Hanna Hottenrott, 2011. "R&D investment and financing constraints of small and medium-sized firms," Small Business Economics, Springer, vol. 36(1), pages 65-83, January.
  14. 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.
  15. 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.
  16. Nazim Belhocine, 2009. "Treating Intangible Inputs As Investment Goods; The Impacton Canadian GDP," IMF Working Papers 09/240, International Monetary Fund.
  17. 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.
  18. 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.
  19. 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.
  20. 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.
  21. Charles J. Hadlock, 1998. "Ownership, Liquidity, and Investment," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 487-508, Autumn.
  22. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
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