Research and Studies

Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2004 > Land Investment by Japanese Firms during and after the Bubble Period

Land Investment by Japanese Firms during and after the Bubble Period *1, *2

March 2004
Toshitaka Sekine *3
Towa Tachibana *4

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Information Division of the Public Relations Department (webmaster@info.boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.

Click on wp04e02.pdf (312KB) to download the full text.

  • *1 This working paper is a translation of the original paper in Japanese (Bank of Japan Research and Statistics Department Working Paper Series 03-06)
  • *2 We thank Jochi Nakajima for his resourceful research assistance. We have benefited from comments by Shin-ichi Fukuda, Shigenori Shiratsuka, and many staff members at the Research and Statistics Department of the Bank of Japan.
  • *3 Reseaech and Statistics Department, E-mail: toshitaka.sekine@boj.or.jp
  • *4 Reseaech and Statistics Department, E-mail: towa.tachibana@boj.or.jp.

Abstract

This paper investigates (i) what has determined the land investment behavior of Japanese firms since the latter half of the 1980s; and (ii) how the current market prices of their land assets diverge from their shadow prices (marginal values of land investment). To do so, we estimate nonlinear land investment functions using micro panel corporate data, and calculate the partial q for land assets taking account of their collateral role.

The land investment functions reveal that firms, in particular those in the real estate related industries, have been net sellers of land in the 1990s, mainly in response to the decline in sales and the deterioration in financial conditions after the bursting of the bubble. Moreover, manufacturing firms have also sold land because of the hike in the overseas production ratio.

Partial q shows that the market price of land held by the real estate related industries has exceeded its shadow price since the latter half of the 1980s. For other industries, market land prices declined to the level of their shadow prices around the middle of the 1990s. However, since then market prices have once again found themselves above their shadow prices, in the face of the pessimistic expectations revealed by distressed share prices after 1997.

JEL Classification Number:
E22, G12, R30, C24

Keywords:
land investment, multiple q, friction model