THE FLOW-OF-FUNDS EQUATIONS OF JAPANESE NONFINANCIAL FIRMS

The portfolio behavior of the Japanese nonfinancial firms in the post- war period is analyzed. Our portfolio model is of the Brainard-Tobin t ype and includes not only financial but also real assets. For our esti mation technique we adopt the method of pooling panel data and time-se ries data to obtain stable estimates. Based on the estimation results, we examine the factors underlying the vigorous capital investment in the 1960s and early 1970s and the subsequent shift from real to financ ial investment. We find that the main driving force of the portfolio d ecision is the profitability of real investment, i.e., Tobin's margina l q. (C) 1994 Academic Press, Inc.