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

44 Pages Posted: 25 Apr 2017

See all articles by Kazuo Kato

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: March/April 2017

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 increased 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: corporate governance, Japan, dividends, repurchases

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 (March/April 2017). Journal of Business Finance & Accounting, Vol. 44, Issue 3-4, pp. 480-523, 2017. Available at SSRN: https://ssrn.com/abstract=2957925 or http://dx.doi.org/10.1111/jbfa.12235

Kazuo Kato (Contact Author)

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

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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