Economic Analysis Series No.200

June, 2019
Special Editor Etsuro SHIOJI
Bequest Motives and the Saving Behavior of the Elderly: Empirical Evidence from a Japanese Household Survey
Junya HAMAAKI and Masahiro HORI
Abenomics, the Housing Market, and Consumption
Joshua K. HAUSMAN, Takashi UNAYAMA, and Johannes F. WIELAND
The Puzzle of the Gap between Strong Corporate Profits and Weak Capital Investment in Japan
On the Performance of the Cross-border M&As by Japanese Firms
Satoshi KOIBUCHI, Mizuki GOTO
Cash Holdings: Evidence from Firm-Level Big Data in Japan
Firm-level Uncertainty and Cash Holding: Theory and Firm-level Empirical Evidence
Aubhik KHAN and Tatsuro SENGA


Bequest Motives and the Saving Behavior of the Elderly: Empirical Evidence from a Japanese Household Survey

By Junya HAMAAKI and Masahiro HORI

This paper investigates why the saving rate of Japanese elderly households is higher than that predicted by the standard life-cycle model. We start by examining changes over time in the reasons why individuals accumulate wealth, using aggregate data published by the Central Council for Financial Services Information. We find that the share of those who answered that their reason for accumulating wealth was to leave a bequest was very low throughout the 1990s but then started to increase substantially in the mid-2000s, suggesting that in recent years the bequest motive has come to play a non-negligible role in the development of Japan’s household saving rate. We then estimate the effect of the bequest motive on the household saving rate, using microdata from an original survey called the Family and Lifestyle Survey that we conducted. The regression results generally support our hypothesis that the bequest motive has a significant positive effect on the saving rate only when individuals expect their children to be worse off over their lifetime than themselves. Finally, based on our conjecture that the proportion of individuals who expect their offspring to be less well-off than themselves is likely to increase in coming years, we estimate that the average saving rate for elderly Japanese households will increase by about 2 percentage points in the period up to 2032.

JEL Classification Codes: D14, D15, E21
Keywords: Saving, Bequest Motives, Life-cycle Hypothesis

Abenomics, the Housing Market, and Consumption

By Joshua K. HAUSMAN, Takashi UNAYAMA, and Johannes F. WIELAND

Household spending in Japan rose less during Abenomics than hoped. We explore to what extent this is explained by Japanese housing market institutions. These institutions meant little pass-through of lower long-term interest rates to rates paid on the mortgages of existing homeowners. Consistent with the small mortgage interest rate response, microdata from the Family Income and Expenditure Survey show no evidence that homeowners with mortgages increased consumption relative to homeowners without mortgages or relative to renters.

JEL Classification Codes: D15, E21, E52, R21
Keywords: Abenomics, Monetary Policy, Consumption, Housing Investment, Interest Rate Pass-through

The Puzzle of the Gap between Strong Corporate Profits and Weak Capital Investment in Japan


Despite the strong performance of corporate earnings, why does capital investment growth remain sluggish in Japan? The purpose of this paper is to solve the puzzle. We empirically investigate the reasons why capital investment is weak in the recovery phase of the 2008 global financial crisis, based on Japanese firm data.

Capital investment is not suppressed due to a decline in growth expectation, because Tobin's q representing investment opportunities has been on an upward trend since FY 2012. However, we find Tobin's q remains weak relative to the steady expansion of corporate earnings. In other words, companies have no expectation that solid profits will continue in the future. It seems that the sluggish capital investment is due to weak expectations for growth,

We point out that uncertainty is one of the downward pressures on capital investment. While the uncertainty that rose rapidly after the global financial crisis has already declined, it still has a negative effect on capital investment. The sensitivity of capital investment to Tobin's q is lower than before, and uncertainty may have raised the adjustment costs for investment. In addition, large investment since the mid-2000s has not promoted improvement of corporate earnings, and that experience of failed past investment may have a negative impact on subsequent investment behavior.

JEL Classification Codes: D22, D25, D81
Keywords: Investment, Uncertainty, Tobin’s q

On the Performance of the Cross-border M&As by Japanese Firms

By Satoshi KOIBUCHI, Mizuki GOTO

This paper explorers how large-scale cross-border mergers affect the performance of acquiring firms. By using the 37 cross-border merger cases with the purchase price more than 100 billion yen (about 1 billion dollar) that 25 Japanese listed companies conducted as acquirers during 1999-2015, we examine the stock price performance of acquirers at the time of first announcements on mergers and estimate the post-merger performance of acquired business. The main results are threefold. First, the sample averages of abnormal return of stock price of acquiring Japanese firms at the time of first announcement of mergers are not statistically different from zero. Even in the cases that showed significant declines at the time of first announcement, their stock prices tend to recover in the period until the completion of acquisition. Second, regarding the impairment of good will and other merger-related intangible assets, 10 out of 37 cases report any impairment losses. However, most cases report relatively small amount of losses while there are only 3 cases that reports substantial amount of losses exceeding 50 percent of purchase price. Third, by estimating post-merger performance of acquired business based on product/industry and geographic segment information, the segments included the acquired business the mergers achieved the stronger sales growth with positive profitability comparing to the incumbent business of acquiring Japanese firms in the fiscal years after the acquisition. These results suggest that under the circumstances such as weakly growing or shrinking incumbent business in Japanese market, the large-scale cross-border mergers are considered as important instruments to reorganize the product portfolio for Japanese firms seeking further growth opportunity.

JEL Classification Codes:G34, G32, G15
Keywords:Cross-border Mergers; Post-merger Performance; Event Study

Cash Holdings: Evidence from Firm-Level Big Data in Japan


To investigate the status of Japanese firms’ cash holdings, first, we document how the distribution of firms’ cash holding has been evolving over the last two decades. Our descriptive analyses using Japanese firm-level “big data” accounting for at most 400 thousand firms over the period of 1994-2016 suggest that Japanese firms on average have increased its size-adjusted cash holding since the late 2000s. This trend has been accompanied by increasing dispersion of the size-adjusted cash holding among firms. Second, we document how firms have increased their cash holdings. The results of our panel estimation show that the sensitivity of the change in cash holdings with respect to the change in cash inflow becomes substantially larger since the late 2000s. Such a sensitivity is also found to be larger for firms holding smaller account receivables and/or inventory as well as for firms with smaller number of customer or transacting with customer showing worse creditworthiness. These results suggest firms’ heterogeneous motivations to hold cash, i.e., firms’ recent tendency to hold larger cash is found for the firms facing better business conditions and keeping better financial position (i.e., smaller demand for working capital), but driven also by precautionary saving motive.

JEL classification: E22, G31, G32
Keywords: Cash Holdings, Cash Inflow, Precautionary Motive

Firm-level Uncertainty and Cash Holding: Theory and Firm-level Empirical Evidence

By Aubhik KHAN and Tatsuro SENGA

We document three facts for publicly listed firms in Japan: (1) a secular decline in the debt-to-asset ratio between 1993 and 2017; (2) a U-shaped pattern in the cash-to-asset ratio, with a secular increase since 2000; (3) an upward shift in the volatility of sales growth after 2000 which has remained high until recently. To account for these facts, we build a general equilibrium model with heterogeneous firms that face uncertainty over idiosyncratic productivity and default risk. We calibrate the model using a panel data of Japanese public firms constructed using the Compustat database. The model predicts that uncertainty faced by firms is positively associated with cash holdings and negatively correlated with borrowings. These model predictions are empirically validated by a panel regression using our data.

JEL Classification Codes: E44, G33, E20
Keywords: Uncertainty; Cash Holding; Idiosyncratic Productivity; Financial Frictions

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