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Cashing in for Growth

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Cashing in for Growth

Corporate Cash Holdings as an Opportunity for Investment in Japan

IMF,

5 min read
5 take-aways
Audio & text

What's inside?

Corporate cash hoarding could be holding back the Japanese economy.

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Editorial Rating

7

Qualities

  • Analytical
  • Innovative
  • Well Structured

Recommendation

It seems that, for Japanese firms, cash is king. By holding on to cash rather than investing it or distributing it in dividends, Japanese businesses could be stifling the economic growth that Abenomics is set on achieving. So why do Japanese companies continue to hold large amounts of cash, and what could loosen their purse strings? Though highly technical, this report from economics scholar Galen Sher offers noteworthy insights into how Japan could recharge its economy. getAbstract recommends it to economists, investors and analysts who are on Japan-watch.

Summary

Since the 1990s, most nonfinancial companies worldwide have held on to more and more cash, so much so that, according to one study, in 2006 the typical US business could have extinguished all its debt with cash. The same was true in Japan in 2013, when cash assets of Japanese nonfinancial companies stood at 50% of nominal GDP. Barring Chinese firms, Japanese enterprises have the highest median ratio of cash to assets globally, and since 2011, their cash allocations have been rising more rapidly than those in many other countries. By keeping cash on hand rather than investing it or paying it out in dividends, Japanese...

About the Author

Galen Sher is a PhD candidate in economics at Oxford University.

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