Production Offshoring and Investment by Japanese Firms
IMF Working Papers, July 30, 2015
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Bibliographic details
- Authors: Joong S Kang, Shi Piao
- Published: July 30, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513557298.001
Summary
- Authors: Joong S Kang, Shi Piao
- Publication date: July 30, 2015
- Core focus: Traces Japanese corporate investment across different types of firms over past decades and estimates the main determinants of investment.
- Central finding stated: Differences exist in investment behavior between firms expanding abroad and those operating mainly in domestic markets; a trend increase in production offshoring is associated with changed investment dynamics for large companies, especially in the transportation sector.
Key findings
- There are differences in investment behavior between firms expanding abroad and those operating mainly in domestic markets.
- On the back of a trend increase in production offshoring:
- Investment by large companies, especially those in the transportation sector, is more positively associated with cash flow.
- Investment by these firms responds less to Q ratio.
- These findings are consistent with:
- The subdued recovery of private investment in recent years despite booming stock markets.
- The large build up of cash holdings by Japanese corporates.
Interpretation and implications
- Offshoring appears to alter the traditional links between market valuation (Q ratio), firm cash flow, and investment decisions, particularly for large and transportation-sector firms.
- The observed shift—stronger cash-flow sensitivity and weaker Q-sensitivity of investment—helps explain:
- Why private investment recovery has been muted even as stock markets boomed.
- How increased cash holdings among firms coexist with limited domestic investment acceleration.
- Policy relevance: Understanding heterogeneous investment determinants across firm types (domestic-focused vs. expanding abroad) is important for designing measures to bolster private investment and to assess the macroeconomic effects of offshoring.
Subjects and keywords
- Subject: Corporate investment; Currencies; Economic sectors; Financial crises; Global financial crisis of 2008-2009; Manufacturing; Money; National accounts; Private investment
- Keywords: bank borrowing; Capital; Corporate investment; Currencies; Economic growth; expectations of demand growth; firm; firms in the transportation sector; Global; Global financial crisis of 2008-2009; investment; investment behavior; Japan; Japanese firm; leverage ratio; Manufacturing; Offshoring; Private investment; WP
Source: Production Offshoring and Investment by Japanese Firms, Joong S Kang and Shi Piao, IMF Working Papers, July 30, 2015.