Bank Power and Cash Holdings: Evidence from Japan
50 Pages Posted: 24 Jan 1999
Date Written: January 11, 1999
Using a sample of firm years from the United States, Germany and Japan, we examine the effect of bank power on the cash holdings of industrial firms. We show that firms in Japan have higher cash holdings than those in the US or Germany. We also show that the high cash levels are correlated with power of the banks. During periods of high bank power, firms' cash holdings are consistent with banks extracting rents. We conclude that the Japanese banks persuade firms to hold higher cash balances than firms in the US and Germany. This is contrary to widely held beliefs about the Japanese governance system.
JEL Classification: G31, G32, G34
Suggested Citation: Suggested Citation