Abstract
Linking segment employment to segment investment in Japanese electronics firms, we find that segment investment increases with segment employment irrespective of segment operating profitability. We show that the internal capital market equalizes the impacts of cash flow across segments. However, the internal capital market does not cut back on investments in loss-making segments. Moreover, investments in all segments increase even when the whole firm is in deficit. Nevertheless, segments with better investment opportunities do not invest more. Not surprisingly, investment in a deficit segment exacerbates subsequent segment profitability and segment asset turnover. Likewise, single-segment firms also have excess capacity, whereas they prolong unnatural investment.
This work was supported by JSPS KAKENHI Grant Number JP17H02471. All remaining errors are our own. Any opinions, findings, or conclusion expressed in this book are those of the authors and do not reflect the views of the Development Bank of Japan or the authors’ affiliations.
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Notes
- 1.
Elpida Holds Micron Acquisition Completion Conference (in Japanese) https://pc.watch.impress.co.jp/docs/news/609906.html, last visited on December 4, 2019.
- 2.
The aggregated loan-deposit ratio declined from more than 80% in 2000 to 66.9% at the end of 2016. For details, see http://www.boj.or.jp/statistics/dl/depo/dcl/index.htm/.
- 3.
For details, see the results of the questionnaire survey on loans for investment properties by the Financial Services Agency (https://www.fsa.go.jp/news/30/20190328.PDF, in Japanese).
- 4.
It is calculated as the equally averaged q of single-segment firms that operate in the same three-digit SIC code. It remains the same for segment q defined as the asset-weighted average q of single-segment firms.
- 5.
However, they found no evidence that the internal capital market protects the investment budgets of a segment with better investment opportunities when the segment or the firm experiences an adverse cash flow shock.
- 6.
In comparison, there is a large discount among U.S. firms in the 1960s.
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Saruyama, S., Xu, P. (2021). Misallocation of Internal Funds to Loss-Making Zombie Businesses in the Electronics Industry. In: Excess Capacity and Difficulty of Exit. SpringerBriefs in Economics(). Springer, Singapore. https://doi.org/10.1007/978-981-16-4900-4_3
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