Chapter

Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan

Albert Ando, Dimitrios Christelis and Tsutomu Miyagawa

in Structural Impediments to Growth in Japan

Published by University of Chicago Press

Published in print November 2003 | ISBN: 9780226060217
Published online February 2013 | e-ISBN: 9780226060231 | DOI: http://dx.doi.org/10.7208/chicago/9780226060231.003.0007
Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan

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This chapter examines the question of whether Japanese corporations have overinvested, and hence are suffering from a glut of excess capacity. It shows that inconsistencies in valuations derived from different parts of the National Accounts can only be explained if, in fact, the corporate sector has built up a capital stock that is far larger than warranted by the profit-maximization motive. As a result, the rate of return on capital is extremely low. It is argued that efficient resource allocation will not occur until this pattern is broken by forcing the corporate sector to pay out more profits via dividends to the household sector. However, this is unlikely to occur any time soon.

Keywords: Japanese corporations; investments; valuation; national accounts; resource allocation; capital

Chapter.  14465 words. 

Subjects: Business and Management

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