Is Japan Really a 'Buy'? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies
Osaka University of Economics
University of Texas at Dallas - Naveen Jindal School of Management
Douglas J. Skinner
The University of Chicago - Booth School of Business
October 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 improvement in governance since 2000, Japanese firms hold less cash and increase payouts to shareholders. Improvements in performance are associated with reductions in (excess) cash, reductions in the influence of the banks that traditionally sit at the center of horizontal keiretsu, and increases in the holdings of management and foreign investors. The market valuation of Japanese firms’ cash holdings was lower than for US firms during the 1990s but increases to levels closer to those of US firms in the 2000s. Collectively, the evidence suggests that performance improves in those Japanese companies that reform their governance practices. These findings have implications for other Asian economies, such as China, India, and Korea, where there are ongoing discussions of how improved governance can increase firm performance and valuation.
Number of Pages in PDF File: 61
Keywords: Japan, corporate governance, payout policy, dividends
JEL Classification: G15, G34, G35
Date posted: November 12, 2011 ; Last revised: October 25, 2014
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