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The effect of Tobin's q on investment in a bank-based financial system: Evidence from Japan

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Listed:
  • Sakawa, Hideaki
  • Watanabel, Naoki
  • Yamauchi, Shohei
  • Liu, Runxi

Abstract

This study replicates the empirical analyses of investment-q theory in Japanese settings. We focus on publicly listed firms in Japan because their financial system is a bank-based system, which is different from the market-oriented system in the U.S. First, we find that investment-q regression does not work better for high-tech firms in Japan, which are different from U.S. firms during 1984–2015. Second, the investment-q regression works better for high-tech firms post the bubble-bursting era, same as in U.S. Third, the value of fits of the investment-q regression in Japanese firms is smaller than that in the U.S. Based on the findings, we interpret that the investment-q theory may not work better under financial constraints in research-intensive firms in a bank-based system.

Suggested Citation

  • Sakawa, Hideaki & Watanabel, Naoki & Yamauchi, Shohei & Liu, Runxi, 2023. "The effect of Tobin's q on investment in a bank-based financial system: Evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22001755
    DOI: 10.1016/j.pacfin.2022.101880
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    References listed on IDEAS

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    More about this item

    Keywords

    Investment; Tobin's Q; Research & development; Learning; Innovation;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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