Land Investment by Japanese Firms during and after the Bubble Period

Toshitaka Sekine and Towa Tachibana
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Towa Tachibana: Bank of Japan

No 04-E-2, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper investigates (i) what has determined the land investment behavior of Japanese firms since the latter half of the 1980s; and (ii) how the current market prices of their land assets diverge from their shadow prices (marginal values of land investment). To do so, we estimate nonlinear land investment functions using micro panel corporate data, and calculate the partial q for land assets taking account of their collateral role. The land investment functions reveal that firms, in particular those in the real estate related industries, have been net sellers of land in the 1990s, mainly in response to the decline in sales and the deterioration in financial conditions after the bursting of the bubble. Moreover, manufacturing firms have also sold land because of the hike in the overseas production ratio. Partial q shows that the market price of land held by the real estate related industries has exceeded its shadow price since the latter half of the 1980s. For other industries, market land prices declined to the level of their shadow prices around the middle of the 1990s. However, since then market prices have once again found themselves above their shadow prices, in the face of the pessimistic expectations revealed by distressed share prices after 1997.

Keywords: land investment; multiple q; friction model (search for similar items in EconPapers)
JEL-codes: C24 E22 G12 R30 (search for similar items in EconPapers)
Date: 2004-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Land Investment by Japanese Firms during and after the Bubble Period (2004)
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