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Cashing in for Growth
Report

Cashing in for Growth

Corporate Cash Holdings as an Opportunity for Investment in Japan

Galen Sher
IMF, 2014
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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.

Take-Aways

  • Except for Chinese firms, Japanese nonfinancial companies 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 firms could be impeding the economic growth that Abenomics has set out to achieve.
  • Transaction costs from outside financing and a “precautionary buffer” against volatile cash flows are two reasons Japanese firms have so much cash.

About the Author

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

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