Entrepreneurship and capital investment: another explanation for the slump in capital investment under deflation

Shin-ichi Fukuda (), Munehisa Kasuya and Masayuki Keida
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Munehisa Kasuya: Professor, Department of Economics, Meisei University
Masayuki Keida: Associate Professor, Faculty of Economics, Rissho University

Public Policy Review, 2018, vol. 14, issue 3, 489-510

Abstract: This study investigates the factors behind the slump in capital investment by listed companies in the deflationary Japanese economy. We estimate the investment function using information on the attributes of top managers as well as corporate financial data. We find that in addition to Tobin’s q and cash flow, several manager-attributes significantly affect each listed company’s capital investment. These attributes are the president’s career and age, whether or not he/she is an owner president, and the ratio of director bonuses to the distribution of profits. Compared to small- and medium-sized companies, listed companies have various financing methods. Thus, even during a financial crisis, the financial restrictions on their capital investment would be relatively moderate. Our results suggest that after the collapse of the bubble economy, in addition to the deterioration of companies’ fundamentals, the changes in the stance of top managers in listed companies may have caused a reduction in capital investment in Japan.

Keywords: capital investment; deflation; entrepreneurship (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2018
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