The Japanese pulp and paper industry: an analysis of financial performance from 1991 to 2001

This article discusses the determinants of profitability expressed as return on capital among Japanese pulp and paper companies. Return on capital is measured as income before tax related to stockholders' equity. Return on capital has been divided into profit margin and asset utilization rate. The hypothesis is that return on capital can be explained by mill size, productivity, product line, financial situation, and use of wood resources. The dataset consists of 13 larger Japanese pulp and paper companies listed in Pulp & Paper Statistics. Data on financial performance, production, and use of wood fibers were collected for the period 1991 - 2001. The average return on equity for the studied companies is 4.2%. Labor productivity has increased quite significantly, from about 600 to 1,000 kg/employee and year. An econometric analysis indicates that the best model fit is found when the asset utilization rate is used as the dependent variable. Significant variables are, among others, asset utilization rate lagged one time period (-), labor productivity (+), capital productivity (-), paper production as a share of total paper and board production (-), total value of assets on the books (-) and solidity (+). This may indicate that the total value of assets on the books is large in relation to the total production of paper, paperboard and pulp