equilibrium value of the ratio of investment to capital is $ \mu + \delta $ . If the parameter of the adjustment cost function is overestimated, then the equilibrium value of Tobin's q will be also overestimated. For example, in the first paper, the estimate of the reciprocal of $ \alpha_{1} $ is in the range of 0.008 to 0.023 for all industries. The depreciation rate ( $ \delta $ ) is 0.0193 and the sample average of $ \frac{(1 - \tau_{t})p_{t}}{(1 - z_{t})p_{t}^{I}} $ is 0.7520. The equilibrium value of q varies from 1.631 to 2.814. Therefore it is likely that it deviates from unity to a large extent and thus the equilibrium q will be overestimated.

The equilibrium q constructed from the estimates of the Euler equations are free from overestimation. Table 7 shows the estimates of the adjustment cost function and the equilibrium q computed from them. The table gives the average of the equilibrium q for the whole sample, the first-half (the second quarter of 1970 to the third quarter of 1986), and the latter-half (the fourth quarter of 1986 to the third quarter of 1990). The equilibrium q's are quite close to unity, irrespective of the industry and the period. Judging from the order of the equilibrium q, it seems that our model describes the investment behavior of the Japanese firms quite successfully.

### 4. Concluding Remarks

Turbulence in the asset market and volatile fluctuations in the real sector is one of the most salient characteristics in the Japanese economy in the period of the middle 1980's to early 90's. It has prompted the serious researchers to pay close attention to the interplay of the asset markets with the business fluctuations in the Japanese economy. Traditionally economists discussed this problem from two standpoints. One is a wealth effect. The households change their consumption levels, depending on the level of their net wealth. The other is the role of stock market in the business investment decision. The future profitability of the investment projects are summarized into the stock price of the firm when the capital market functions properly. We owe this channel to James Tobin.

It is true that these channels are important through which the asset markets affect the real sector of the economy, but it has been asserted for a long time without any solid evidence that there is another channel in Japan through which the asset markets affect the real economy. That is via the land asset held by the firms. It has been frequently pointed out that the land asset has played a vital role as a collateral in easing the borrowing constraints and hence boosting the investment activities.

This paper is a first attempt to investigate this channel rigorously. Our main findings are summarized as follows: This channel has been indeed important, especially for non-manufacturing industries that are composed of a number of small-sized firms. Most of these small-sized firms do not have long-term close relationships with the banks, and it is highly likely that there is asymmetry in information between creditors and debtors, which drives the wedge between the cost of internal finance and that of external finance. Then it is natural that the land asset or the cash flow can work as