Japan’s Intangible Capital and Valuation of Corporations in a Neoclassical Framework
Employing a new accounting data set, this paper estimates the value of productive capital stocks in Japan using the neoclassical model of McGrattan and Prescott (2005). We compare those estimates to actual corporate valuations, and show that the actual value of equity plus net debt falls within a reasonable range of the theory’s prediction for the value of Japanese corporations during the periods 1981-86 and 1993-97. This finding differs from previous results based on studies of aggregate data sets or based on studies of micro data sets that neglected intangible capital. We also show that the Japanese ratio of the amount of intangible capital stock to the amount of tangible capital stock is comparable to the analogous ratios for the U.S. and U.K.
This paper provides a new interpretation of Japanese stock market developments since 1980, taking into account the role of intangible capital, based on the framework of McGrattan and Prescott (2005). To do so, we employ a new accounting data set, together with a national aggregate data set of the System of National Account (SNA). We show that the ratio of the amount of intangible capital stock to the amount of tangible capital stock for Japan is close to the values for the U.S. and the U.K.. Our estimates of the ratio of the actual corporate value to the fundamental value of capital stocks differ from previous studies using national aggregate data, and from previous studies using micro data sets. We show that intangible capital is an important source of actual corporate values in the Japanese stock market, despite being neglected in the previous studies of Japanese stock markets.