How Did the Profitability of the Japanese Firms Change? Before, During, and After the Lehman Shock in the US

This paper investigates the time-series changes of the profitability of the Japanese corporations by focusing, in particular, on their differences in the periods before, during, and after the US Lehman shock. Evidence derived from our analyses using the Japanese time-series data is summarized as follows. 1) First, around the Lehman shock, the ordinary income to equity capital ratio, total asset turnover, and the sales per employee of the Japanese corporations dropped, and after the shock, they recovered; however, their levels did not exceed the levels before the Lehman shock. 2) Second, during the period of the Lehman shock, the labor costs to sales ratio of the Japanese corporations unfavorably increased; however, after the shock, it recovered to almost the same level as that before the Lehman shock. 3) Third, during the Lehman shock, the ordinary income to sales ratio, ordinary income per employee, and ordinary income to labor costs of the Japanese corporations declined; however, after the shock, they recovered and improved to the levels that exceeded those before the Lehman shock. 4) Fourth, the financial leverage of the Japanese corporations continuously decreased regardless of the effects of the Lehman shock.