FACTORS AFFECTING PRICE EARNINGS RATIOS AND MARKET VALUES OF JAPANESE FIRMS

This paper investigates cross-sectional explanations of Japanese PE ratios by focusing on two dependent variables, the percentage change in the PE ratio (PE) and the percentage change in the market value of equity (MV). Results of this study suggest that changes in the value of hidden assets such as land, changes in the patterns of ownership by Japanese individuals, and foreign investors, changes in expected earnings growth and earnings risk, and changes in dividends per share and dividend payout are significantly related to changes in PE ratios and market values. Our results, therefore, support the contention of French and Poterba that changes in land values appear to explain at least a portion of changes in Japanese PE ratios.