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

Albert Ando and Alan Auerbach

No 1762, NBER Working Papers from National Bureau of Economic Research, Inc

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.

Date: 1985-10
Note: PE
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Published as "The Corporate Cost of Capital in Japan and the United States: A Compar-ison." From Government Policy Towards Industry in the USA and Japan,edited by John B. Shoven, pp. 21-49. New York: Cambridge University Press 1988.

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