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Does Agency Cost Model Explain Business Fluctuations in Japan?: An Empirical Attempt to Estimate Agency Cost by Firm Size

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  • Kazuo Ogawa
  • Hirokuni Uchiyama

Abstract

An attempt is made to estimate a state space model of investment and borrowing in a Bayesian framework and extract the unobservable agency cost of Japanese firms by firm size. Our estimates of the agency cost exhibited a declining trend in the late 80s and then switched to an increasing trend in the 90s. We pin down the driving force of agency cost to be the market value of land. Furthermore, we find that investment and borrowing behavior of small firms is very much affected by their agency cost in the late 80s and the 90s. Our evidence demonstrates that imperfection of capital market is notable for small firms in Japan.

Suggested Citation

  • Kazuo Ogawa & Hirokuni Uchiyama, 2003. "Does Agency Cost Model Explain Business Fluctuations in Japan?: An Empirical Attempt to Estimate Agency Cost by Firm Size," ISER Discussion Paper 0579, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0579
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2003/DP0579.pdf
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    Cited by:

    1. Oliveira, Fernando Nascimento, 2016. "The External Finance Premium in Brazil: Empirical Analyses Using State Space Models," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 36(1), March.
    2. Benedikt Martens & Frank Teuteberg, 2012. "Decision-making in cloud computing environments: A cost and risk based approach," Information Systems Frontiers, Springer, vol. 14(4), pages 871-893, September.
    3. Uchiyama, Hirokuni, 2006. "The index of agency cost and the financial accelerator: the case of Japan," Japan and the World Economy, Elsevier, vol. 18(1), pages 22-48, January.

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