Does the Creative Business Promotion Law enhance SMEs' capital investments? Evidence from a panel dataset of unlisted SMEs in Japan

This paper examines whether the Creative Business Promotion Law (CBPL) enacted in 1995 has helped to enhance the capital investment of small and medium enterprises (SMEs) in Japan. Using a panel dataset of unlisted manufacturing SMEs in Japan, we examine their investment behavior under a marginal q model, incorporating leverage and annually constructed CBPL-approved dummies. The estimation results showed that CBPL approval substantially increased SMEs' new investments. The positive effect of marginal q, and the negative effect of leverage were also shown, both of which were consistent with the hypothesis of the model.