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

44 Pages Posted: 6 Jul 2004 Last revised: 5 Sep 2008

See all articles by Albert Ando

Albert Ando

University of Pennsylvania and NBER (Deceased)

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: October 1985

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.

Suggested Citation

Ando, Albert and Auerbach, Alan Jeffrey, The Corporate Cost of Capital in Japan and the U.S.: a Comparison (October 1985). NBER Working Paper No. w1762. Available at SSRN: https://ssrn.com/abstract=338816

Albert Ando

University of Pennsylvania and NBER (Deceased)

N/A

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Germany

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