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Review of Finance Vol. 25 No. 3 2021

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

Ben Charoenwong1; Randall Mørck2,3,4,5; Yupana Wiwattanakantang1,5

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

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.

DOI
10.1093/rof/rfaa029
Volume
25
Issue
3
Pages
713-743
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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