Working Paper: NBER ID: w3371
Authors: Albert Ando; Alan J. Auerbach
Abstract: We extend our recent work measuring the cost of capital in Japan and the United States by considering several questions that such results raised. Among our findings are:\n(1) The small firm - large firm distinction appears to be more significant in Japan, not in the United States;\n(2) Correcting Japanese accounting statements for cross-holding raises the estimated Japanese cost-of-capital by about 1 percentage point;\n(3) Correcting Japanese accounting statements for unmeasured returns to land has a significantly more important effect: the most conservative correction we attempt raises the implied Japanese return to capital to parity with the United States during the mid-1980's.
Keywords: cost of capital; Japan; United States; firm size; crossholdings; land values
JEL Codes: G31; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size (L25) | cost of capital (G31) |
| correcting accounting statements for crossholdings (G32) | estimated cost of capital (G31) |
| unmeasured returns to land (Q15) | returns to capital (E22) |
| land prices (R31) | observed returns (G17) |