Extensions of the Multiple q Model: (II) Heterogeneity by Mode of Acquisition

This chapter evaluates the heterogeneity of capital stock and investment behavior by focusing on and contrasting between heterogeneity across capital goods categories and heterogeneity across acquisition modes. Four categories of capital goods (buildings and structures, machinery and equipment, vessels and vehicles, and land) and three modes of acquisition (new construction, second-hand acquisitions, and large-scale repairs) are mutually matched using microdata from the Cabinet Office and the Development Bank of Japan. Based on the investment rate data by resulting segment (capital good × acquisition mode), we conduct analyses using two approaches: an estimation using the Multiple q investment function that presupposes a convex adjustment cost function, as is assumed in Tobin’s q theory, and a factor analysis that allows for a non-convex adjustment cost function. The results of the factor analysis show that regardless of the type of capital good, the factor loadings are similar in segments with common acquisition modes. Furthermore, the parameter values for the investment adjustment costs are more affected by the acquisition mode than they are by the type of capital good. These results, along with those for the Multiple q investment function, reveal that the investment behavior around new construction can be explained (to some extent) by the convex adjustment cost function assumed by Tobin’s q theory. However, the results also suggest the existence of a non-convex adjustment cost function for second-hand acquisition and large-scale repair modes. In addition, the results suggest that new construction has the strongest relationship with the replacement investment ratio (or corporate growth).