Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing*

Author:

Charoenwong Ben1,Morck Randall2345,Wiwattanakantang Yupana16

Affiliation:

1. National University of Singapore

2. University of Alberta

3. National Bureau of Economic Research

4. Asian Bureau of Economic and Finance Research

5. European Corporate  Governance Institute

6. European Corporate Governance Institute

Abstract

Abstract From January 2011 through March 2018, the Bank of Japan purchased equity index exchange-traded funds (ETFs) worth about 3.5% of GDP. Identification of the effect of central bank ETF purchases on stock valuations and corporate responses is via differently-weighted and changing stock indices. BOJ purchases lift valuations, increase share issuances, and increase total assets. On average, the latter increase is due to cash and short-term securities rather than capital investment. However, firms with worse corporate governance do increase capital investment. These findings suggest central bank equity purchases are a problematic tool for stimulating economic growth through high broad-based private-sector corporate investment.

Publisher

Oxford University Press (OUP)

Subject

Finance,Economics and Econometrics,Accounting

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