IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/1762.html
   My bibliography  Save this paper

The Corporate Cost of Capital in Japan and the U.S.: A Comparison

Author

Listed:
  • Albert Ando
  • Alan J. Auerbach

Abstract

This paper presents evidence about the coats of corporate capital in Japan and the US, for a sample of large companies, and evaluates a variety of hypotheses about why the cost might be lower in Japan.We find that the before-tax return to capital in Japan appears slightly lower than in the U.S. when corrected book measures of earnings are used, but that this result would be reversed if market returns to Japanese equity were used in place of corrected earningsto measure the cost of equity.To what ever extent the cost of capital may actually be lower in Japan, we show that this is unlikely to be due either to a lower overall corporate tax burden or the particular tax advantages of corporate borrowing.

Suggested Citation

  • Albert Ando & Alan J. Auerbach, 1985. "The Corporate Cost of Capital in Japan and the U.S.: A Comparison," NBER Working Papers 1762, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1762
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w1762.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. King, Mervyn A. & Fullerton, Don, 2010. "The Taxation of Income from Capital," National Bureau of Economic Research Books, University of Chicago Press, number 9780226436319.
    2. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
    3. John B. Shoven & Jeremy I. Bulow, 1975. "Inflation Accounting and Nonfinancial Corporate Profits: Physical Assets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 557-612.
    4. Alan J. Auerbach, 1979. "Wealth Maximization and the Cost of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 433-446.
    5. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Meerschwam, 1991. "The Japanese Financial System and the Cost of Capital," NBER Chapters, in: Trade with Japan: Has the Door Opened Wider?, pages 191-224, National Bureau of Economic Research, Inc.
    2. Albert Ando & John Hancock & Gary Sawchuk, 1997. "Cost of Capital for the United States, Japan, and Canada: An Attempt at Measurement Based on Individual Company Records and Aggregate National Acccoun," NBER Working Papers 5884, National Bureau of Economic Research, Inc.
    3. Jeffrey A. Frankel, 1991. "Japanese Finance in the 1980s: A Survey," NBER Chapters, in: Trade with Japan: Has the Door Opened Wider?, pages 225-270, National Bureau of Economic Research, Inc.
    4. Bronwyn H. Hall, 1991. "Corporate Restructuring and Investment Horizons," NBER Working Papers 3794, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Don Fullerton & Yolanda Kodrzycki Henderson, 1987. "The Impact of Fundamental Tax Reform on the Allocation of Resources," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 401-444, National Bureau of Economic Research, Inc.
    2. Simeon Djankov & Tim Ganser & Caralee McLiesh & Rita Ramalho & Andrei Shleifer, 2010. "The Effect of Corporate Taxes on Investment and Entrepreneurship," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 31-64, July.
    3. Roger H. Gordon, 1985. "Taxation of Investment and Savings in a World Economy: The Certainty Case," NBER Working Papers 1723, National Bureau of Economic Research, Inc.
    4. Don Fullerton & Marios Karayannis, 1987. "The Taxation of Income from Capital in the United States, 1980-86," NBER Working Papers 2478, National Bureau of Economic Research, Inc.
    5. Fumio Hayashi, 1983. "Real and Financial Decisions of a Firm with Bankruptcy and Default: An Integration," NBER Working Papers 1097, National Bureau of Economic Research, Inc.
    6. Richard W. Kopcke, 1995. "Tobin's Q, economic rents, and the optimal stock of capital," Working Papers 95-4, Federal Reserve Bank of Boston.
    7. Michael Pfaffermayr & Matthias Stöckl & Hannes Winner, 2013. "Capital Structure, Corporate Taxation and Firm Age," Fiscal Studies, Institute for Fiscal Studies, vol. 34(1), pages 109-135, March.
    8. Deen Kemsley & Padmakumar Sivadasan & Venkat Subramaniam, 2018. "The composite dividend tax rate," Accounting and Business Research, Taylor & Francis Journals, vol. 48(7), pages 727-758, November.
    9. Schönemann, Kristin, 2009. "Finanzierungsstrategien und ihre Auswirkungen auf den Unternehmenswert deutscher Immobilien-Kapitalgesellschaften," arqus Discussion Papers in Quantitative Tax Research 94, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. William M. Gentry & R. Glenn Hubbard, 1998. "Fundamental Tax Reform and Corporate Financial Policy," NBER Working Papers 6433, National Bureau of Economic Research, Inc.
    11. Altig, David & Carlstrom, Charles T, 1991. "Inflation, Personal Taxes, and Real Output: A Dynamic Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 547-571, August.
    12. Singh, Ajit, 1991. "The stock market and economic development: should developing countries encourage stock markets?," MPRA Paper 54927, University Library of Munich, Germany.
    13. Alan J. Auerbach, 1985. "Real Determinants of Corporate Leverage," NBER Chapters, in: Corporate Capital Structures in the United States, pages 301-324, National Bureau of Economic Research, Inc.
    14. Alan J. Auerbach, 1989. "Tax policy and corporate borrowing," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 33, pages 136-172.
    15. Alan J. Auerbach & Mervyn A. King, 1983. "Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 587-609.
    16. Roger H. Gordon & Jeffrey K. MacKie-Mason, 1990. "Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form," NBER Working Papers 3222, National Bureau of Economic Research, Inc.
    17. Alan J. Auerbach & Mervyn A. King, 1979. "Corporate Financial Policy, Taxes, and Uncertainty: An Integration," NBER Working Papers 0324, National Bureau of Economic Research, Inc.
    18. Trevor S. Harris & R. Glenn Hubbard & Deen Kemsley, 1999. "The Share Price Effects of Dividend Taxes and Tax Imputation Credits," NBER Working Papers 7445, National Bureau of Economic Research, Inc.
    19. Myron S. Scholes & Mark A. Wolfson, 1989. "Converting Corporations to Partnerships through Leverage: Theoretical and Practical Impediments," NBER Working Papers 3092, National Bureau of Economic Research, Inc.
    20. James M. Poterba & Lawrence H. Summers, 1984. "The Economic Effects of Dividend Taxation," NBER Working Papers 1353, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1762. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.