Bank Power and Cash Holdings: Evidence from Japan

Posted: 3 Jul 2001

See all articles by Lee Pinkowitz

Lee Pinkowitz

Georgetown University - Department of Finance

Rohan Williamson

Georgetown University - McDonough School of Business

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Abstract

Using industrial firms from the United States, Germany and Japan, we examine the effect of bank power on cash holdings. We show that Japanese firms hold more cash than U.S. or German firms. We also document that Japanese cash balances are affected by the monopoly power of banks. During periods with powerful banks, firms' high cash holdings are consistent with banks extracting rents. When banks weakened, Japanese cash levels became more like U.S. firms. We conclude that strong Japanese banks persuade firms to hold large cash balances. This is contrary to widely held beliefs about the Japanese governance system.

JEL Classification: G31, G32, G34

Suggested Citation

Pinkowitz, Lee Foster and Williamson, Rohan G., Bank Power and Cash Holdings: Evidence from Japan. Review of Financial Studies, Winter 2001. Available at SSRN: https://ssrn.com/abstract=273587

Lee Foster Pinkowitz

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2689 (Phone)
202-687-4031 (Fax)

Rohan G. Williamson (Contact Author)

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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