INTERACTION IN INVESTMENT AMONG RIVAL JAPANESE FIRMS

This paper develops a simple framework for investigating the variation in firms' investment behavior across industrial sectors and over time . We divide the economy into three tiers: major industrial sectors, bu sinesses, and firms, and focus on the impact of business-level interac tion on firms investment behavior. After controlling for unobservable firm-specific effects, business-specific effects, and a changing econo mic environment, we find that the investment and profitability of comp etitors help explain variations in investment across firms in major Ja panese industrial sectors. (C) 1998 Elsevier Science B.V.