Drivers of Corporate Cash Holdings in Japan: Japan

May 18, 2023

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Seho Kim, Pablo Lopez Murphy, and Rui Xu. Drivers of Corporate Cash Holdings in Japan: Japan, (USA: International Monetary Fund, 2023) accessed September 21, 2024

Summary

In Japan, corporate savings have risen since 2000 in line with profits. A large share of the additional savings was kept as cash holdings (i.e., cash and short-term investments) rather than used for investment. Building on a rich literature, this paper identifies two additional drivers of corporate cash holdings using financial data of public and private Japanese firms. First, a higher share of intangible capital is associated with more cash holdings. This indicates the presence of financial frictions as intangible capital is not easily collateralizable. Such financial friction could be alleviated by shifting towards cash flow-based lending that is prevalent in the United States (US). Second, corporate tax cuts are associated with more cash holdings while having no significant effect on investment. Given the significant fiscal cost, the efficiency of corporate tax cuts should be re-evaluated.

Subject: Corporate income tax, Economic theory, Effective tax rate, Financial frictions, Intangible capital, International organization, Monetary policy, National accounts, Tax allowances, Tax policy, Taxes

Keywords: Cash holding, Corporate cash holdings, Corporate income tax, Corporate tax tax cut, Drivers of Corporate Cash Holdings, Effective tax rate, Financial frictions, Firm sample, Global, Intangible assets, Intangible capital, Investment, Japan, Short-term investment, Tax allowances, Tax cuts

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Selected Issues Paper No. 2023/029
Stock No:

SIPEA2023029
ISBN:

9798400242243
ISSN:

2958-7875

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