The Effect of the Bank of Japan’s ETF Purchases on Firm Performance

We examine how the Bank of Japan’s purchase of exchange traded funds (ETFs) affects companies’ profit, innovation investment, and governance using a difference-in-differences method. The Bank of Japan has purchased ETFs tracking Nikkei 225 and TOPIX since December 2010. The results show that the ETF purchase policy lowered the return on assets of TOPIX and Nikkei 225 companies by 0.5–2.0% and 1.0–3.4%, respectively, and they are robust to different model specifications. Our study enhances the current understanding of the unintended effect of the central bank purchasing private assets