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Cashing in for Growth: Corporate Cash Holdings as an Opportunity for Investment in Japan

Author

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  • Galen Sher
Abstract
Over the last two decades, cash holdings in nonfinancial firms around the world have increased. This phenomenon is particularly concerning in Japan, where the success of Abenomics depends on a transition from stimulus-driven to self-sustaining growth based on private consumption and investment. This paper finds that Japanese nonfinancial firms have accumulated cash at the expense of investment and dividends, hampering this transition. The evidence suggests that cash accumulation is due to financial imperfections combined with rising corporate profitability and uncertainty, while corporate governance plays only a limited role. These firms have cash holdings available for investment of about 5 percent of GDP. Policy options for encouraging the use of these cash holdings include improving firms’ access to market-based financing and discouraging CEO duality.

Suggested Citation

  • Galen Sher, 2014. "Cashing in for Growth: Corporate Cash Holdings as an Opportunity for Investment in Japan," IMF Working Papers 2014/221, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/221
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    References listed on IDEAS

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    Cited by:

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    2. Tanweer Akram, 2016. "Japan's Liquidity Trap," Economics Working Paper Archive wp_862, Levy Economics Institute.
    3. Ahmad Alkhataybeh & Safaa Adnan AlSmadi & Mohammad Ziad Shakhatreh & Mohammad A. Khataybeh, 2022. "Government Ownership and Corporate Cash Holdings: Empirical Evidence from the Amman Stock Exchange," Sustainability, MDPI, vol. 14(18), pages 1-14, September.
    4. Mahmoud Otaify & Aly Dawood & Mohamed Farouk, 2022. "Optimal Cash Ratio and Adjustment Speed Across Different Firm Characteristics," International Journal of Economics and Financial Issues, Econjournals, vol. 12(3), pages 73-85, May.
    5. Davide Porcellacchia, 2016. "Wage-Price Dynamics and Structural Reforms in Japan," IMF Working Papers 2016/020, International Monetary Fund.
    6. Machokoto, Michael & Mahonye, Nyasha & Makate, Marshall, 2022. "Short-term financing sources in Africa: Substitutes or complements?," Research in International Business and Finance, Elsevier, vol. 60(C).
    7. KHAN, Asad & BIBI, Memoona & TANVEER, Sarfaraz, 2016. "The Impact Of Corporate Governance On Cash Holdings: A Comparative Study Of The Manufacturing And Service Industry," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(3), pages 40-79.
    8. Shajuan Zhang, 2018. "Industry†specific Exchange Rate Fluctuations, Japanese Exports and Financial Constraints: Evidence from Panel Vector Autoregressive Analysis," Asian Economic Journal, East Asian Economic Association, vol. 32(2), pages 125-145, June.
    9. Kang, Sunmin & Hwang, Intae & Song, Sooyoung, 2018. "Cash hoarding: Vice or virtue," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 94-116.
    10. Cuong, Ly Kim & Shimizu, Katsutoshi & Cui, Weihan, 2021. "The determinants of negative net leverage policy: New evidence from Japan," Economic Modelling, Elsevier, vol. 97(C), pages 449-460.
    11. Ryosuke Fujitani & Masazumi Hattori & Tomohide Mineyama, 2024. "Passive and Proactive Motivations of Cash Holdings," Working Papers e200, Tokyo Center for Economic Research.
    12. HATTORI Masazumi & FUJITANI Ryosuke & NAKAJIMA Jouchi & YASUDA Yukihiro, 2023. "Real Effects of Corporate Cash Holdings: Evidence from Japan," Discussion papers 23084, Research Institute of Economy, Trade and Industry (RIETI).

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