Is Japan Really a 'Buy'? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies
Osaka University of Economics
Naveen Jindal School of Management, The University of Texas at Dallas
Douglas J. Skinner
The University of Chicago - Booth School of Business
May 1, 2014
Chicago Booth Research Paper No. 13-06
We investigate whether Japan’s corporate governance reforms improve economic performance and valuation. Consistent with an overall improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. However, Japanese firms still hold more cash than US firms, even when we account for the large increase in US firms’ holdings of cash and marketable securities. In cross section, reductions in (excess) cash and increases in payouts (especially dividends) are associated with improvements in performance. These changes are also related to declines in the influence of the banks (which traditionally sit at the center of Japanese horizontal keiretsu) and with increases in the influence of foreign investors. The market valuation of Japanese firms’ cash holdings was lower than that of US firms during the 1990s but has now increased to levels closer to those of US firms. Collectively, the evidence suggests that performance improves in those Japanese companies that improve governance but that some Japanese companies continue to lag.
Number of Pages in PDF File: 60
Keywords: Japan, corporate governance, payout policy, dividends
JEL Classification: G15, G34, G35working papers series
Date posted: November 12, 2011 ; Last revised: May 2, 2014
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