### 1. Overview

This appendix gives information on the data set employed in our econometric study of investment demand of the Japanese firms. Specifically detailed explanations are given on how the series of the physical depreciable capital stock and the land stock are constructed.

Our data mainly come from the Quarterly Report of Financial Statements of Incorporated Business (abbreviated as QRFS) compiled by the Ministry of Finance. They report major items in the balance sheet and the profit and loss statement by industry. The coverage of the report is the corporations the capital stock of which is larger than ten million yen. However, there lies one obstacle in making use of the data in the QRFS over time. That is a discontinuity of the data series. This arises from a complete renewal of the corporations in the sample every April. After renewing the sample corporations in April, they are fixed for one year. First step of the data construction is to connect the discontinuous data series in a consistent manner. Fortunately for the main items in the balance sheet the values in the previous quarter are reported as well as the current ones for the same sample. This overlapping recording is useful in connecting the discontinuous series in a consistent manner. Institute For Social Engineering(1976) describes the detailed procedures for connecting the series. We follow the procedures suggested there.

We chose fourteen industries as our sample that have not affected by the industry reclassification since 1960. They are all industries, construction, manufacturing, food and beverages, textiles, pulp, paper and paper products, chemicals, steel, non-ferrous metal, fabricated metal products, machinery, electrical machinery, wholesale and retail trade, and real estate. The sample period for most of the data series covers from the third quarter of 1968 to the third quarter of 1992.

### 2. Construction of Physical Depreciable Net Capital Stock

Our basic strategy to construct a series of the physical depreciable capital stock $ (K_{t}) $ is to follow the perpetual inventory method. Our benchmark capital stock is based on the value of the fourth quarter of 1970. We have the book value of the tangible fixed assets in the report. We exclude land and construction in progress in constructing our series of depreciable stock. It is necessary to obtain the information of the average years elapsed since installation in converting the book value into the real value. The average years elapsed since installation are recorded in 1970 National Wealth Survey of Japan (abbreviated as NWS) for the separate items of the tangible fixed assets by industry. To make use of this information, we first divide the values of depreciable assets in QRFS into six categories: nonresidential buildings, structures, machinery, vessels, transportation equipment except vessels, instruments and tools based on the information available in NWS for each industry. Table A-1 shows the average years elapsed since installation for six types of physical depreciable assets in fourteen industries. Then the real value for the depreciable assets in the benchmark period can be obtained by dividing the book values by the deflator of investment goods.