significantly negative effect on the investment in land and net borrowings except construction and real estate.

Contrastively the MAQ variable has a significantly positive effect on physical investment across all the industries, which is consistent with the underlying investment theory. Contrasted effect of the MAQ variable with the AVQ variable can be interpreted as an implication of the findings in the previous section that the market valuation is a noisy signal of the profitability of investment projects. $ ^{[21]} $ It should be noted that importance of the MAQ variable is observed not only in the investment equation, but also in the land purchase and borrowing equations. The MAQ variable exerts a significantly positive effect on the land purchase decision in all the industries except non-ferrous metal, fabricated metal products, and electrical machinery, while it affects the demand for borrowing in a significantly positive manner for all industries, construction, manufacturing, pulp, paper and paper products, chemicals, steel, wholesale and retail trade, and real estate.

In addition to the fundamentals, market value of land as well as cash flow exerts a significantly positive effect on investment for some industries. The former is an explanatory variable with significantly positive effect on investment for pulp, paper and paper products, fabricated metal products, wholesale and retail trade and real estate, while the latter for all industries, construction, manufacturing, pulp, paper and paper products, fabricated metal products, machinery, and electrical machinery. $ ^{22} $ Cash flow also affects the land purchase positively for construction, manufacturing, food and beverages, pulp, paper and paper products, machinery, electrical machinery, and real estate and borrowings positively for manufacturing, pulp, paper and paper products, electrical machinery, and real estate. Positive effect of cash flow on borrowing can be interpreted as an active role played by cash flow to reduce the agency costs and mitigate the borrowing conditions. $ ^{23} $

The effect of cash flow is notably large in real estate. The coefficient estimate of cash flow on land purchase and borrowings exceeds unity. This implies that a unit increase of cash flow brings forth more than a unit increase of land purchase and borrowings. It is highly likely that this excessive response of land purchase and borrowings to cash flow in real estate is partly responsible for a sharp rise in land prices in the middle to late 80's.

The same story also holds for construction industry. A unit increase of cash flow raises the level of investment, land purchase, and borrowings by 0.50, 0.17, and 0.60, respectively. It should be noted that common characteristics to construction and real estate industries are composition of a large number of small-sized firms in an industry. As discussed in the previous section, small-sized firms in general have not established a long-term relationship with the banks. Therefore the real and financial decisions of the firm will be very much affected by the level of internal funds.

These results obtained so far hint that the fundamental and the non-fundamental components in average q might have different effects on the portfolio behavior of the corporations. $ ^{24)} $ To take this possibility into consideration in estimation, we modify our specifications of the portfolio equations in