TITLE:
Wealth Creation or Extraction in Capital Structures: The Case of Toshiba and Hedge Funds
AUTHORS:
Frederick Betz, Michael Kim
KEYWORDS:
Financial Systems, Macro-Economic Models, Institutional Economics, Capital Flows, Capital Structures
JOURNAL NAME:
Modern Economy,
Vol.14 No.2,
February
28,
2023
ABSTRACT: The scientific status of an
economic theory is either as an idealistic prescription (normative theory) or as a depiction of a factual reality
(empirical theory). This issue is important to the status of macro-economic
models to distinguish between capital structures which add to economic
productivity or diminish productivity. The methodology of this research is to
improve macro-economic models mathematically by raising their algebraic
equations to vector equations and graphing the equations in a systems-dynamics
flow models. To apply this approach empirically, we analyze a recent historical
event in 2022 in Japan, wherein global hedge-funds invested in the Japanese corporate conglomerate Toshiba to take it apart
(privatize it). In this vectorized modeling approach, the traditional
Harrod-Domar-Solar macro-economic algebraic model is thus generalized to
distinguish between the normative goal of investments to increase productivity
in an economy or to extract wealth. This research shows how to model such
differences in capital structures—wherein their capital flows increase or decrease productivity in an
economy.