Working Paper: NBER ID: w25525
Authors: Ben Charoenwong; Randall Morck; Yupana Wiwattanakantang
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: Bank of Japan; Equity Purchases; Quantitative Easing
JEL Codes: E52; E58; G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| BOJ equity purchases (E52) | zombie firms (G33) |
| BOJ equity purchases (E52) | stock valuations (G12) |
| BOJ equity purchases (E52) | share issuances (G24) |
| BOJ equity purchases (E52) | total assets (G19) |
| total assets (G19) | capital investment (E22) |
| BOJ equity purchases (E52) | cash and short-term investments (G31) |