Survey of the Literature

In this chapter, we review the development of capital investment research over the past few decades from both theoretical and empirical points of view. We emphasize its development in Japan, but we do not limit our focus to Japan. The starting point for this field of study is that Tobin’s q theory has not lived up to expectations in terms of empirical studies even though it is profoundly rooted in the microeconomic foundations of firms. To overcome this issue, many theoretical models, accompanied by new empirical findings, have been proposed; these models do not, however, overwrite all former discussions. Following an introductory discussion in Sect. 1.1, Sect. 1.2 describes a variety of studies on the development of post q theory, and Sect. 1.3 summarizes the current understanding based on accumulated investment research. This research is based on the presumption that all capital goods are homogeneous and can be aggregated as a single capital good. We emphasize the heterogeneity of capital goods and the non-linearity of adjustment costs in investment, which constitute the central theme of this book.