Asset Price Shocks, Financial Constraints, and Investment: Evidence from Japan

54 Pages Posted: 26 Apr 2003 Last revised: 8 Nov 2017

See all articles by Vidhan K. Goyal

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Takeshi Yamada

Australian National University (ANU)

Multiple version iconThere are 2 versions of this paper

Date Written: May 6, 2003

Abstract

We examine corporate investment spending around the asset price bubble in Japan in the late 1980s and make three contributions to our understanding of how stock valuations affect investment. First, investment responds significantly to nonfundamental components of stock valuations during asset price shocks; fundamentals matter less. Clearly, the stock market is not a sideshow. Second, the time series variation in the sensitivity of investment to cash flow is affected more by changes in monetary policy than by shifts in collateral values. Third, asset price shocks primarily affect firms that rely more on bank financing and not necessarily those that use equity markets for financing.

Keywords: Investment, financial constraints, asset price bubble, Japan

JEL Classification: G31, G32

Suggested Citation

Goyal, Vidhan K. and Yamada, Takeshi, Asset Price Shocks, Financial Constraints, and Investment: Evidence from Japan (May 6, 2003). Journal of Business, Vol. 77, pp. 175-199, 2004. Available at SSRN: https://ssrn.com/abstract=387040

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Takeshi Yamada

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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