The Cost of Capital in Japan: Recent Evidence and Further Results

We extend our recent work measuring the cost of capital in Japan and the United States by considering several questions that such results raised. Among our findings are:
(1) The small firm - large firm distinction appears to be more significant in Japan, not in the United States;
(2) Correcting Japanese accounting statements for cross-holding raises the estimated Japanese cost-of-capital by about 1 percentage point;
(3) Correcting Japanese accounting statements for unmeasured returns to land has a significantly more important effect: the most conservative correction we attempt raises the implied Japanese return to capital to parity with the United States during the mid-1980's.