Land as Production Input and Collateral: Land Investment by Japanese Firms

Is the collateral role an empirically important determinant of investment in land? We study what has determined the land investment by Japanese firms since the 1990s, after the collapse of the asset-price bubble. With a large panel data set, we estimate nonlinear land-investment functions and calculate q for land assets. The estimates confirm the dual roles of land assets: production inputs and collateral. Firms sold land assets in response to the decline in their sales and the deterioration in financial conditions. Partial q for land assets was generally below one during the period.