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Part-Paid Stock, Corporate Finance, and Investment: Economic Consequences of the Part-Paid Stock System and Supplementary Installments in Early 1930s Japan

Author

Listed:
  • Takashi Nanjo

    (Bank of Japan (E-mail: takashi.nanjou@boj.or.jp))

  • Makoto Kasuya

    (University of Tokyo (E-mail: kasuya@e.u-tokyo.ac.jp))

Abstract

Under Japan's prewar capital stock system of joint-stock companies, rather than paying the full face value of a share in one lump sum, shareholders paid for stocks in multiple installments. This system was transplanted from industrialized Western nations during the Meiji Period to make it easier for investors to buy company shares and promote capital concentration. Company directors determined the amount of supplementary installments on part-paid stocks and when the installments were paid. The installments functioned as a last resort for corporate fundraising in times of financial distress. Studies of historical documents show that in the early 1930s during the Great Depression, many companies raised funds through supplementary installments, applying the funds to make investments and repay debts. We construct a new corporate financial dataset with data on supplementary installments encompassing 174 firms, and estimate cross-sectional investment functions for fiscal 1932. Regression results suggest that while corporate investments were subject to liquidity and debt constraints, supplementary installments stabilized corporate cash management and promoted corporate investment.

Suggested Citation

  • Takashi Nanjo & Makoto Kasuya, 2009. "Part-Paid Stock, Corporate Finance, and Investment: Economic Consequences of the Part-Paid Stock System and Supplementary Installments in Early 1930s Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 219-246, November.
    • Handle: RePEc:ime:imemes:v:27:y:2009:i:1:p:219-246
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    References listed on IDEAS

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    1. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February.
    2. Okuno-Fujiwara, Masahiro & Okazaki, Tetsuji (ed.), 1999. "The Japanese Economic System and its Historical Origins," OUP Catalogue, Oxford University Press, number 9780198289012.
    3. Nanjo, Takashi, 2002. "Developments in Land Prices and Bank Lending in Interwar Japan: Effects of the Real Estate Finance Problem on the Banking Industry," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 117-142, October.
    4. Cha, Myung Soo, 2003. "Did Takahashi Korekiyo Rescue Japan from the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 63(1), pages 127-144, March.
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    Cited by:

    1. Richard S. Grossman & Masami Imai, 2011. "Contingent Capital and Bank Risk-Taking among British Banks before World War I," Wesleyan Economics Working Papers 2011-003, Wesleyan University, Department of Economics.

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    More about this item

    Keywords

    Part-paid stock; Joint-stock company; Corporate finance; Investment; Financial system; Interwar period; Great Depression;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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