Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing

64 Pages Posted: 27 Jan 2019 Last revised: 5 Dec 2022

See all articles by Ben Charoenwong

Ben Charoenwong

National University of Singapore - Department of Finance; Chicago Global

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Asian Bureau of Finance and Economic Research

Yupana Wiwattanakantang

National University of Singapore - Department of Finance ; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 16, 2020

Abstract

From January 2011 through March 2018, the Bank of Japan purchased equity index ETFs worth about 3.5% of GDP. Identification of the effect of central bank ETF purchases on stock valuations and corporate responses is via differently-weighted and changing stock indices. BOJ purchases lift valuations, increase share issuances, and increase total assets. On average, the latter increase is due to cash and short-term securities rather than capital investment. However, firms with worse corporate governance do increase capital investment. These findings suggest central bank equity purchases are a problematic tool for stimulating economic growth through high broad-based private-sector corporate investment.

Keywords: Unconventional Monetary Policy, Quantitative Easing, Corporate Valuations, Corporate Investment, Corporate Governance, Japan

JEL Classification: G31, G32, G34, E58, E44

Suggested Citation

Charoenwong, Ben and Morck, Randall K. and Wiwattanakantang, Yupana, Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing (August 16, 2020). University of Alberta School of Business Research Paper No. 2019-501, Available at SSRN: https://ssrn.com/abstract=3310561 or http://dx.doi.org/10.2139/ssrn.3310561

Ben Charoenwong (Contact Author)

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Randall K. Morck

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Yupana Wiwattanakantang

National University of Singapore - Department of Finance ( email )

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