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

Hideaki Sakawa, Naoki Watanabel, Shohei Yamauchi and Runxi Liu

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

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.

Keywords: Investment; Tobin's Q; Research & development; Learning; Innovation (search for similar items in EconPapers)
JEL-codes: E22 G31 O33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x22001755

DOI: 10.1016/j.pacfin.2022.101880

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