Is Japan Really a 'Buy'? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies

75 Pages Posted: 12 Nov 2011 Last revised: 30 Apr 2016

Kazuo Kato

Osaka University of Economics

Meng Li

University of Texas at Dallas - Naveen Jindal School of Management

Douglas J. Skinner

The University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2016

Abstract

We investigate whether Japan’s much touted governance reforms improve its firms’ management of cash, 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 whether improved governance can increase firm performance and valuation.

Keywords: Japan, corporate governance, payout policy, dividends

JEL Classification: G15, G34, G35

Suggested Citation

Kato, Kazuo and Li, Meng and Skinner, Douglas J., Is Japan Really a 'Buy'? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies (April 1, 2016). Chicago Booth Research Paper No. 13-06. Available at SSRN: https://ssrn.com/abstract=1958169 or http://dx.doi.org/10.2139/ssrn.1958169

Kazuo Kato

Osaka University of Economics ( email )

2-2-8 Osumi
Higashiyokogawa-ku
Osaka
Japan

Meng Li

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W Campbell Road
Richardson, TX 75083-0688
United States
(972)883-2492 (Phone)

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

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