Wealth Creation or Extraction in Capital Structures: The Case of Toshiba and Hedge Funds

Abstract

The scientific status of an economic theory is either as an idealistic prescri ption (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.