The effects of the BoJ's ETF purchases on equities and corporate investment

The Bank of Japan acquired ETFs and stocks to stimulate Japan's stagnating economy and improve financial conditions. Studies found that this program raised equity prices, although its effectiveness in stimulating corporate investment remained unclear. This paper contributes to the literature by...

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Bibliographic Details
Published inEconomic modelling Vol. 129; p. 106540
Main Author Cohen, Lior
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.12.2023
Subjects
Bank of Japan
Corporate investment
Purchasing equities
Quantitative easing
Corporate investment
E52, E58, E44
Purchasing equities
Quantitative easing
Bank of Japan
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Summary:The Bank of Japan acquired ETFs and stocks to stimulate Japan's stagnating economy and improve financial conditions. Studies found that this program raised equity prices, although its effectiveness in stimulating corporate investment remained unclear. This paper contributes to the literature by identifying the program's channels affecting equities and corporate investment by utilizing data from firms listed on the Nikkei-225 from 2012 to 2019 and estimating a panel GMM. The results show the program raised stock returns and reduced volatility by creating price pressures and inducing investors to rebalance their portfolios; however, it diminished market liquidity by reducing the supply of shares and adjusting market expectations. The program raised investment for firms with high-growth prospects or domestic-oriented revenue by increasing household wealth and reducing equity risk premia to create favorable financial conditions. Overall, this study illustrates the program stimulated investment while having trade-offs regarding market liquidity and cash hoarding. •I analyze the impact of the Bank of Japan's ETF purchase program on markets and corporate activity.•I use a dataset of firms listed on the Nikkei-225 from 2012 to 2019 to estimate a panel GMM.•The ETF purchases raised stock returns by creating price pressures and encouraging portfolio rebalancing.•The program stimulated corporate investment by raising household wealth and reducing equity risk premia.•The program stimulated economic activity while having trade-offs regarding market liquidity and cash hoarding.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2023.106540