The effect of the Bank of Japan's Exchange-Traded Fund purchases on firm performance

Since December 2010, the Bank of Japan has been purchasing exchange-traded funds (ETFs) that track the Nikkei 225 and TOPIX. In this study, we examine how the Bank of Japan's purchase of ETFs affects companies' profits, innovation investment, and governance using a difference-in-differences method. The results show that the ETF purchase policy lowered the return on assets for TOPIX and Nikkei 225 companies by 0.2%–1.5% and 0.8%–1.8%, respectively. As random assignment of data sources to either treatment or control groups was not possible, we also performed a propensity score method, of which the results were robust. Our study enhances the current understanding of the unintended effects of a central bank purchasing private assets. However, our findings are by no means perfect, and therefore, care will also need to be taken in interpreting the results.