Allocative Efficiency of Capital across Japanese Firms

Kenichi Ueda and Khaliun Dovchinsuren
Additional contact information
Khaliun Dovchinsuren: Graduate School of Public Policy, The University of Tokyo

Public Policy Review, 2020, vol. 16, issue 7, 1-22

Abstract: Using the firm-level information of the Financial Statements of Corporations by Industry compiled annually by the Japanese Ministry of Finance, we gauge the allocative efficiency of capital across non-financial firms from 1983 to 2017. We carefully correct the biases stemming from changes in the sampling methodology over the years. We then estimate dispersion in the return on assets (EBIT/total assets) across firms each year, controlling for differences in growth expectations and risks by regressions. Capital allocation rapidly became inefficient around the time when the economic bubbles burst. The degree of inefficiency seems to have stabilized at a high level afterwards, but recently, it appears to be deteriorating again. Moreover, we find that cash and deposit holdings at the firm level have nothing to do with the deteriorating trend of allocative efficiency of capital. Rather, it is estimated to increase the return.

Keywords: capital allocation across firms; allocative efficiency of capital; cash and deposit holdings by firms (search for similar items in EconPapers)
JEL-codes: E2 G3 O4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.mof.go.jp/english/pri/publication/pp_review/ppr16_07_01.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mof:journl:ppr16_07_01

Access Statistics for this article

More articles in Public Policy Review from Policy Research Institute, Ministry of Finance Japan Contact information at EDIRC.
Bibliographic data for series maintained by Policy Research Institute ().