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

December 15, 2014

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Format: Chicago

Galen Sher. Cashing in for Growth: Corporate Cash Holdings as an Opportunity for Investment in Japan, (USA: International Monetary Fund, 2014) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Auditing, Capital spending, Corporate governance, Currencies, Economic sectors, Economic theory, Expenditure, Money, Precautionary demand, Public financial management (PFM)

Keywords: Abenomics, Agency cost, Auditing, Capital spending, Cash holding, Cash holdings, Cash-to-asset ratio, CEO duality, Corporate governance, Currencies, Demand outlook, Financing constraint, Global, Growth, Investment, Japan, Nonfinancial firm, Operating cash flow, Precautionary demand, Transaction cost, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/221
Stock No:

WPIEA2014221
ISBN:

9781498322171
ISSN:

1018-5941

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