Bank of Japan Equity Purchases: The (Non-)Effects of Extreme Quantitative Easing. (15th October 2020)

• Record Type: Journal Article
• Authors: Charoenwong, Ben; Morck, Randall; Wiwattanakantang, Yupana
• Is Part Of: Review of finance. Volume 25:Number 3(2021)
• Page Start: 713
• Page End: 743
• Publication Date: 2020-10-15
• Subjects: G31 -- G32 -- G34 -- E58 -- E44; Unconventional monetary policy -- Real investment -- Corporate governance -- Asia; Finance -- Europe -- Periodicals; Financiën; Finance; Periodicals; 332.09405
• DOI: 10.1093/rof/rfaa029
• Languages: English
• ISSNs: 1572-3097

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.