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ORCID

Giovanni Ganelli 0000-0002-0670-5920

Keywords

Japan; corporate cash holdings; corporate governance; growth strategy

Abstract

Japan’s high corporate savings might be holding back growth, by preventing a more efficient use of resources. Small and medium enterprises (SMEs) have been the main contributors to high corporate cash balances, but more recently larger companies have also increased cash holdings. This paper focuses on the causes and consequences of the current corporate behavior and suggests options for reform. In particular, Japan’s weak corporate governance – as measured by available indexes – might be contributing to high cash holdings. An empirical analysis on a panel of Japanese firms confirms that improving corporate governance would help unlock corporate savings. The main policy implication of the analysis carried out in this paper is that a more ambitious and comprehensive corporate governance reform should be a key component of Japan’s growth strategy. Such a reform would help remove some of the bottlenecks of the legal and corporate governance framework which encourage high corporate cash holdings and prevent a more pro-growth use of resources

Acknowledgments

We are grateful to Nobuyuki Kinoshita for very useful discussion. We also thank an anonymous referee, Dennis Botman, Stephan Danninger, Jerry Schiff, and participants in the IMF seminar held in Tokyo on “Towards a more dynamic business sector” for their comments.

First Page

51

Last Page

69

Page Count

19

Received Date

18 February 2016

Revised Date

29 August 2016

Accept Date

15 December 2016

Online Available Date

30 January 2017

DOI

10.7172/2353-6845.jbfe.2017.1.3

JEL Code

D22; G30; G34

Publisher

University of Warsaw

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