IMF Working Papers

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

Author/Editor:

Galen Sher

Publication Date:

December 15, 2014

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 2014/221

Subject:

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