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:

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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.

Series:

Working Paper No. 14/221

Subject:

English

Publication Date:

December 15, 2014

ISBN/ISSN:

9781498322171/1018-5941

Stock No:

WPIEA2014221

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

35

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