Firms’ Perceptions of the Business Cycle and Their Managerial and Financial Conditions

Kazumi Asako, Koichi Ando, Kazuyuki Matsumoto
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This article is based on a study first reported in the Asako, Ando and Matsumoto (2005), ‘Kigyou no Keiki Handan to Keiei Zaimu Joukyou’, Financial Review, Vol.78, pp.85-103 (in Japanese).

Perception of the business cycle can differ among firms, which has been confirmed by extensive survey data. The question we want to answer in this paper is “What causes differences in business cycle perception?” by utilizing a newly designed questionnaire. Specifically, we match properties emphasizing the absolute level of economic activities or the direction of their changes and indicators of a firm’s managerial and financial conditions, and examine the relationship between them. Based on our results, we could not find a particular indicator for the properties of firms that indicate level or trend change. However, a higher level of capital or number of employees suggests a tendency to emphasize change or rate of change, rather than the level of the business survey index. With regards to the time horizon of the business cycle, profit ratios (profit against sales or total assets) in general are good indicators. Firms with a high debt ratio tend to be myopic. Regression analysis shows that firms with high rates of investment/sales significantly tend to have a long-term vision.