WHAT CAUSED FIXED INVESTMENT TO STAGNATE DURING THE 1990S IN JAPAN? EVIDENCE FROM PANEL DATA OF LISTED COMPANIES

Authors


  • We would like to thank an anonymous referee, Fumio Hayashi (a guest editor), Shin-ichi Fukuda, Takeo Hoshi, Takatoshi Ito, Colin McKenzie, and Kazuo Ogawa for valuable comments and discussion. In addition, we would like to thank seminar participants at the CIRJE-TCER Macroeconomic Conference, the 2003 meeting of the Japanese Economic Association, Development Bank of Japan, Osaka University, Ritsumeikan University, and Hitotsubashi University for helpful comments. The second author would like to acknowledge financial support from the Ministry of Education and Science, Japan (Identification Number: 12124207).

Abstract

Taking into account considerable changes in the corporate finance behaviour of listed Japanese companies during the 1990s, this paper empirically investigates the causes of the stagnation of the listed companies’ fixed investment during the 1990s, using panel data from the companies’ financial statements. Our findings include the following: (i) while positive cash flow sensitivity was detected for the companies listed during the 1990s, it was not necessarily a consequence of the binding of liquidity constraints; (ii) declines in Tobin's q explain decreases in fixed investment throughout the 1990s; and (iii) the holding of liquid assets acted as a buffer against liquidity shocks.

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