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Heterogeneity of Capital Stocks in Japan: Classification by Factor Analysis

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  • Tonogi, Konomi
  • Nakamura, Jun‐ichi
  • Asako, Kazumi

Abstract

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.

Suggested Citation

  • Tonogi, Konomi & Nakamura, Jun‐ichi & Asako, Kazumi, 2014. "Heterogeneity of Capital Stocks in Japan: Classification by Factor Analysis," CEI Working Paper Series 2013-12, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2013-12
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/28269/wp2013-12.pdf
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    References listed on IDEAS

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    Cited by:

    1. Akiyuki Tonogi & Konomi Tonogi, 2017. "Measurement of R&D Investment by Firm and Multiple q: Analysis of Investment Behaviors by Capital Good at Listed Japanese Firms," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 13(2), pages 121-152, October.

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    More about this item

    Keywords

    Investment; Heterogeneity of Capital Stocks; Investment Purchase and Sale; Factor Analysis; Adjustment Costs; Tobin's Q.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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