Financial frictions and foreign direct investment: Evidence from Japanese microdata

Financial frictions and foreign direct investment: Evidence from Japanese microdata

Financial Frictions and Foreign Direct Investment: Evidence from Japanese Microdata Horst Raff, Michael Ryan, Frank St¨ahler PII: DOI...

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Financial Frictions and Foreign Direct Investment: Evidence from Japanese Microdata Horst Raff, Michael Ryan, Frank St¨ahler PII: DOI: Reference:

S0022-1996(18)30024-2 doi:10.1016/j.jinteco.2018.02.006 INEC 3122

To appear in:

Journal of International Economics

Received date: Revised date: Accepted date:

9 March 2015 23 February 2018 23 February 2018

Please cite this article as: Raﬀ, Horst, Ryan, Michael, St¨ahler, Frank, Financial Frictions and Foreign Direct Investment: Evidence from Japanese Microdata, Journal of International Economics (2018), doi:10.1016/j.jinteco.2018.02.006

This is a PDF ﬁle of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its ﬁnal form. Please note that during the production process errors may be discovered which could aﬀect the content, and all legal disclaimers that apply to the journal pertain.

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Figure 1: Annual Investment Counts by Japanese and Other Major Country Firms into the United States: 1980-2000

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Source: Toyo Keizai and U.S. International Trade Administration, various years

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Figure 2: Average Land Values and Bank Health

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Source: Author calculations from PACAP dataset

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Figure 3: Land Price Variation among 9 Japanese Regions (with Nationwide Average)

Source: Japanese Real Estate Institute Urban Land Price Index

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Figure 4: Prefectural and City-level Price Indices

Source: Japanese Real Estate Institute Urban Land Price Index

a

1987 .. Aaa .. Aaa Aaa Aa2 Aaa .. Aa1 Aaa Aa2

1988 Aa3 Aaa .. Aaa Aaa Aa2 Aaa Aa2 Aa1 Aaa Aa2

1990 Aa3 Aa1 Aa3 Aa1 Aaa A1 Aa1 Aa3 Aa1 Aa1 Aa3

1991 Aa3 Aa1 Aa3 Aa3 Aa2 A2 Aa1 A1 Aa1 Aa3 Aa3

1993 A2 A1 A3 A1 Aa3 A3 Aa3 A2 Aa3 A1 A2

1994 A2 A1 A3 A1 A1 A3 Aa3 A2 Aa3 A1 A2

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1992 A1 Aa3 Aa3 Aa3 Aa3 A2 Aa3 A1 Aa3 Aa3 A1

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1989 Aa3 Aaa Aa3 Aaa Aaa Aa2 Aaa Aa3 Aa1 Aaa Aa2

1996 A2 A1 Baa1 A1 A2 Baa1 Aa2 A3 Aa3 A1 A2

1997 Baa1 A3 Baa1 Baa1 A3 Baa2 Aa2 Baa1 A1 A2 Baa1

1998 Baa1 Baa1 Baa1 Baa1 Baa1 Baa2 A1 Baa1 A3 A3 Baa1

1999 Baa1 A3 Baa1 A3 A3 Baa2 A2 A3 A3 A3 Baa1

2000 Baa1 Baa1 Baa1 Baa1 Baa1 Baa2 A2 Baa1 A3 A3 Baa1

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1995 A2 A1 Baa1 A1 A1 Baa1 Aa3 A3 Aa3 A1 A2

Notes: Ratings from highest to lowest: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2. Mitsubishi Bank merged with the Bank of Tokyo to form the Bank of Tokyo-Mitsubishi in 1996. ”..” indicates no Moody’s rating.

Asahi Bank Dai-Ichi Kangyo Bank Daiwa Bank Fuji Bank Indus. Bank of Japan Long-Term Credit Bank Mitsubishi Bank Sakura Bank Sanwa Bank Sumitomo Bank Tokai Bank

1986a .. Aaa .. Aaa Aaa Aaa Aaa .. Aaa Aaa ..

Table 1: Japanese Bank Ratings (Moody’s Long-Term Obligation Ratings)

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ACCEPTED MANUSCRIPT Table 2: Data Descriptive Statistics Maximum 27.420 14.56 1 893.64 15.43 1 0.92 0.55

Average 25.396 3.81 66.5 93.07 4.27 0.63 0.19 0.08

Investors Only Minimum Maximum 23.574 27.420 0.11 14.38 0 1 3.50 893.64 1.03 15.43 0 1 0.01 0.84 -0.33 0.41

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All Firms Minimum 23.036 0.11 0 727 1.03 0 0.01 -0.53

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Notes: See Appendix for details on data construction and sources. a - Excluding Land. b - Billions of Yen

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Average 24.806 3.70 42.7 48.89 4.00 0.25 0.17 0.07

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Average Values* ln(LandValue) MarketToBook Keiretsu TotalAssetsa,b TFP InvestmentExperience MarketValueb CashFlow

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Table 3: Japanese FDI into US: 1980-2000 1 0.189*** (0.053)

ln(LandValue)

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ln(LandValue) * Keiretsu

MarketToBook

0.103*** (0.041)

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TFP

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TotalAssetsa

0.102*** (0.040)

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MarketToBook * Keiretsu

Investor Firm-Level Variables Keiretsu

2 0.188*** (0.055)

3 0.186*** (0.051) -0.104*** (0.035)

4 0.186*** (0.052) -0.057** (0.031)

5 0.185*** (0.050) -0.046** (0.025)

0.101** (0.042) 0.002 (0.003)

0.101*** (0.039) 0.001 (0.002)

0.101*** (0.041) 0.001 (0.002)

0.183*** (0.061)

0.154** (0.057) 0.093*** (0.033) 0.014 (0.009) 0.105*** (0.037) 0.087* (0.049) 0.054*** (0.018) No No 17,447 -1841.159 0.000

0.153** (0.055) 0.084*** (0.029) 0.015 (0.011) 0.103** (0.042) 0.085* (0.051) 0.054*** (0.020) Yes Yes 17,447 -1656.578 0.000

InvestmentExperience MarketValue CashFlow

3-digit Industry-Time Fixed Effects Firm-Fixed Effects N Log Pseudolikelihood Prob >χ2

No No 21,740 -4320.784 0.000

Yes Yes 21,740 -3998.452 0.000

Yes Yes 21,740 -3901.145 0.000

Notes: Logit Model, log odds reported. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. a - Excluding land.

ACCEPTED MANUSCRIPT Table 4: Using Bartik-Type LandValue Calculations for Investment between 1980-2000

MarketToBook MarketToBook * Keiretsu

TotalAssetsa

0.090*** (0.034) 0.001 (0.001)

0.109** (0.060) 0.096*** (0.037) 0.005 (0.008) 0.085** (0.041) 0.089* (0.045) 0.048*** (0.17) Yes Yes 7,433 -943.563 0.000

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0.093*** (0.034) 0.003 (0.002)

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Investor Firm-Level Variables Keiretsu

Equal Weight 0.175*** (0.057) -0.074** (0.041)

InvestmentExperience

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MarketValue CashFlow

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ln(LandValue) * Keiretsu

HQ Dominant 0.166*** (0.052) -0.070** (0.041)

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3-digit Industry-Time Fixed Effects Firm-Fixed Effects N Log Pseudolikelihood Prob >χ2

0.110** (0.057) 0.095*** (0.036) 0.004 (0.003) 0.079** (0.38) 0.085* (0.047) 0.049*** (0.017) Yes Yes 7,433 -917.645 0.000

Notes: Logit Model, log odds reported. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. a - Excluding land.

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Table 5: Japanese FDI into US by Subperiods: 1980-2000

ln(LandValue)

ln(LandValue) * Keiretsu

MarketToBook

MarketToBook * Keiretsu

Investor Firm-Level Variables Keiretsu TotalAssetsa TFP InvestmentExperience MarketValue CashFlow N Log PseudoLikelihood Prob >χ2

1980-1985 0.251*** (0.073) -0.187*** (0.064)

1986-1990 0.136*** (0.052) -0.080*** (0.027)

1991-1995 0.138*** (0.051) -0.041*** (0.015)

1996-2000 0.197** (0.093) -0.094* (0.055)

0.171** (0.085) -0.003 (0.002)

0.048 (0.040) -0.001 (0.001)

0.202*** (0.077) -0.071*** (0.022)

0.218*** (0.079) -0.008 (0.005)

0.247*** (0.089) 0.107*** (0.032) 0.018 (0.013) 0.174*** (0.067) 0.094* (0.051) 0.038 (0.29) 4,914 -609.745 0.000

0.122 (0.093) 0.101*** (0.034) 0.011 (0.009) 0.100** (0.050) 0.055 (0.038) 0.071** (0.033) 4,507 -674.534 0.000

0.197*** (0.066) 0.071** (0.029) 0.012 (0.008) 0.122*** (0.045) 0.062 (0.047) 0.068** (0.031) 4,298 -611.473 0.000

0.188** (0.082) 0.104*** (0.038) 0.014 (0.010) 0.131*** (0.047) 0.109** (0.059) 0.066*** (0.030) 3,728 -461.547 0.000

Notes: Logit Model, log odds reported. 3-digit industry-time and firm fixed effects, while not reported, are used. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. a - Excluding land.

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Table 6: FDI into US, Using Moody’s Ratings as Bank Health Measure

Bank Health Aaa Aa1 Aa3

-0.078 (0.054) -0.087 (0.062) -0.107 (0.088) -0.132* (0.083) .. (..) .. ( ..) .. (..) .. (..) 3,896 -800.912 0.000

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0.104* (0.063) 0.100 (0.081) -0.155*** (0.051) -0.181*** (0.047) -0.218*** (0.078) -0.231*** (0.077) -0.228*** (0.082) -0.161** (0.072) 12,432 -1137.812 0.000

1991-1995 0.155*** (0.051) -0.071*** (0.27) 0.157** (0.071)

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A3 Baa1

.. (..) 0.114* (0.071) 0.048 (0.041) 0.119 (0.109) 0.137 (0.113) 0.084 (0.057) 0.101 (.084) .. (..) 4,424 -558.821 0.000

.. (..) .. (..) -0.071 (0.050) -0.108 (0.095) -0.209*** (0.59) -0.199*** (0.071) -0.210*** (0.061) -0.118 (.079) 4,112 -423.674 0.000

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Baa2

1996-2000 0.137* (0.085) -0.099* (0.053) 0.153** (0.077)

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Keiretsu

1986-1990 0.171*** (0.063) -0.083*** (0.031) 0.163** (0.083)

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ln(LandValue) * Keiretsu

1986-2000 0.228*** (0.088) -0.131*** (0.42) 0.213*** (0.081)

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ln(LandValue)

Notes: Logit Model, log odds reported. Aa2 is the omitted variable. 3-digit industry-time and firm fixed effects, while not reported, are used. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively.

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Other firm-level variables included in regression but omitted for brevity.

Table 7: Effect of Single versus Multiple Bank Downgrades on FDI Likelihood

ln(LandValue)

ln(LandValue) * Keiretsu

Keiretsu

SingleDowngrade SingleDowngrade * Keiretsu MultipleDowngrade MultipleDowngrade * Keiretsu N Log PseudoLikelihood Prob >χ2

1986-2000 0.174*** (0.062) -0.055*** (0.021) 0.209*** (0.080)

1986-1990 0.132*** (0.049) -0.061*** (0.023) 0.173*** (0.059)

1991-1995 0.192*** (0.074) -0.068*** (0.025) 0.187** (0.092)

1996-2000 0.231* (0.124) -0.139* (0.71) 0.145** (0.083)

-0.104** (0.051) 0.083** (0.035) -0.243*** (0.094) 0.102** (0.062) 12,432 -1218.541 0.000

-0.117** (0.058) 0.081* (0.044) -0.271*** (0.103) 0.128** (0.064) 3,896 -795.197 0.000

-0.131* (0.067) 0.084* (0.052) -0.238** (0.111) 0.111** (0.060) 4,424 -524.643 0.000

-0.142* (0.075) 0.079* (0.050) -0.214** (0.108) 0.107* (0.53) 4,112 -418.578 0.000

Notes: Logit Model, log odds reported. 3-digit industry-time and firm fixed effects, while not reported, are used. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. Other firm-level variables included in regression but omitted for brevity.

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MarketToBook MarketToBook * Bonds

Investor Firm-Level Variables Bonds

1991-1995 0.120** (0.051) -0.061*** (0.021)

1996-2000 0.184** (0.078) -0.072* (0.040)

0.141** (0.078) -0.017 (0.011)

0.025 (0.017) 0.052 (0.039)

0.202*** (0.071) -0.151*** (0.57)

0.171*** (0.064) -0.112* (0.061)

0.074 (0.054) 0.171*** (0.061) 4,914 -621.317 0.000

0.218** (0.104) 0.009 (0.007) 4,507 -894.145 0.000

0.204** (0.095) 0.143*** (0.051) 4,298 -582.134 0.000

0.187* (0.103) 0.155** (0.072) 3,728 -451.359 0.000

N Log PseudoLikelihood Prob >χ2

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1986-1990 0.131*** (0.045) -0.052*** (0.014)

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ln(LandValue) * Bonds

1980-1985 0.247*** (0.089) -0.141*** (0.055)

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Table 8: Effect of Bond Issuances on FDI Likelihood

Notes: Logit Model, log odds reported. 3-digit industry-time and firm fixed effects, while not reported, are used. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. Other firm-level variables

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Table 9: Core, Non-Core, and Greenfield Only Investments

ln(LandValue)

ln(LandValue) * Keiretsu

MarketToBook

MarketToBook * Keiretsu

Investor Firm-Level Variables Keiretsu TotalAssetsa TFP InvestmentExperience MarketValue CashFlow N Log PseudoLikelihood Prob >χ2

Core 0.137*** (0.049) -0.038** (0.018)

Non-Core 0.152*** (0.053) -0.077*** (0.029)

Greenfield Only 0.140*** (0.050) -0.041** (0.019)

0.109*** (0.041) 0.008 (0.005)

0.115*** (0.044) 0.018 (0.013)

0.118*** (0.045) 0.021 (0.015)

0.107 (0.072) 0.102*** (0.027) -0.037* (0.020) 0.118*** (0.044) 0.054 (0.040) 0.081*** (0.027) 12,956 -1689.351 0.000

0.201** (0.111) 0.099*** (0.037) 0.071** (0.033) 0.115*** (0.039) 0.088*** (0.029) 0.055*** (0.019) 4,491 -555.210 0.000

0.218** (0.119) 0.100*** (0.035) 0.014 (0.009) 0.105*** (0.037) 0.091** (0.031) 0.050*** (0.017) 17,447 -1931.548 0.000

Notes: Logit Model, log odds reported. 3-digit industry-time and firm fixed effects, while not reported, are used. Standard errors clustered at industry-level. *,**,*** -Significant at the 10%, 5%, and 1% level,respectively. a - Excluding land.

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MarketToBook .. 1 0.067 -0.015 -0.051 -0.074 0.001 0.081

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ln(LandValue) 1 0.071 0.121 0.118 0.192 0.201 0.101 0.127

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ln(LandValue) MarketToBook Keiretsu TotalAssets TFP InvestmentExperience MarketValue CashFlow

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Table 10: Correlations Between Firm Level Characteristics Keiretsu .. .. 1 0.183 -0.087 0.228 -0.056 0.099

TotalAssets .. .. .. 1 0.308 0.392 -0.062 0.052

TFP .. .. .. .. 1 0.037 0.160 0.078

Invst. Exp. .. .. .. .. .. 1 0.096 -0.037

MarketValue .. .. .. .. .. .. 1 0.131

CashFlow .. .. .. .. .. .. .. 1

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