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Why Is Investment So Weak Despite High Profitability? A panel study of Japanese manufacturing firms

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  • OGAWA Kazuo
  • Elmer STERKEN
  • TOKUTSU Ichiro

Abstract

We examine the investment behavior of Japanese manufacturing firms, using firm-level panel data for the period of 1970 to 2014. We find that the profitability of investment, measured by marginal q, has increased over time, while the investment rate has declined. We shed light on the perceived gap between investment and marginal q by estimating a marginal q-type investment function. We find that the investment sensitivity to profitability has declined steadily, which is partly explained by a decrease in the proportion of growth firms that have strong investment sensitivity to marginal q, and an increase in the proportion of restructuring firms that have weak investment sensitivity to marginal q.

Suggested Citation

  • OGAWA Kazuo & Elmer STERKEN & TOKUTSU Ichiro, 2019. "Why Is Investment So Weak Despite High Profitability? A panel study of Japanese manufacturing firms," Discussion papers 19009, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:19009
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    Cited by:

    1. Lawless, Martina & Martinez-Cillero, Maria & O'Toole, Conor, 2021. "SME investment determinants and financing constraints: A stochastic frontier approach," Papers WP699, Economic and Social Research Institute (ESRI).
    2. Wan, Junmin & Qiu, Qiqi, 2023. "Industrial investments and housing prices in China," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 832-852.
    3. Martinez-Cillero, Maria & Lawless, Martina & O'Toole, Conor, 2023. "Analysing SME investment, financing constraints and its determinants. A stochastic frontier approach," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 578-588.
    4. ISHIKAWA Takayuki, 2023. "The Decline in Capital Formation in Japan: Empirical research on Japanese listed firms data," Discussion papers 23008, Research Institute of Economy, Trade and Industry (RIETI).

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