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Corporate Financial Surpluses and Allocation of Internal Cash Flow in Japan: Microdata Analysis by Enterprise Size Based on Financial Statements Statistics of Corporations by Industry

Author

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  • Jun-ichi Nakamura

    (General Manager, Research Institute of Capital Formation, Development Bank of Japan)

Abstract

This paper uses annual survey slips data in the Ministry of Finance’s Financial Statements Statistics of Corporations by Industry (FSSCI) to analyze the stylized facts and determinants of financial surpluses (excess savings), cash holdings, and allocation of internal cash flow in enterprises with a wide range of capital sizes for the 20 years between 1996 and 2015 when the corporate sector continued to record financial surpluses or excess savings. The estimation results of the excess savings function and the cash holdings function identified the influence of financial constraints in small and micro enterprises and in preparation for lumpy investment as one of the factors behind excess savings and cash holdings. While no behavior of expanding savings to accumulate cash or repay debt was identified, the results indicated the possible excessive accumulation of cash caused by corporate governance problems in firms featuring business diversification and larger boards. The estimation results of the cash flow usage function confirmed that the propensity to spend changed in the direction of giving priority to securing liquidity after the Global Financial Crisis around 2008, and that smaller firms had a higher propensity to spend on cash accumulation. Meanwhile, firms featuring business diversification and larger boards tend to restrict the outflow of cash. This tendency is strong particularly among major firms. Even if major firms accumulate cash in preparation for future investment, M&A and FDI are in mind rather than domestic plant and equipment investments.

Suggested Citation

  • Jun-ichi Nakamura, 2018. "Corporate Financial Surpluses and Allocation of Internal Cash Flow in Japan: Microdata Analysis by Enterprise Size Based on Financial Statements Statistics of Corporations by Industry," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 14(3), pages 397-432, July.
    • Handle: RePEc:mof:journl:ppr14_03_02
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    References listed on IDEAS

    as
    1. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
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    3. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    4. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    5. Jun-ichi Nakamura & Konomi Tonogi & Kazumi Asako, 2017. "Investment Behaviors by Capital Good and Enterprise Size: Testing Capital Goods Heterogeneity and Capital Market Imperfection with the FSSCI," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 13(2), pages 71-102, October.
    6. Pérez Artica, Rodrigo & Brufman, Leandro & Martinez, Lisana, 2013. "What are the causes of the growing trend of excess savings of the corporate sector in developed countries? An empirical analysis of three hypotheses," MPRA Paper 47410, University Library of Munich, Germany.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    financial surpluses; excess savings; cash holdings; cash flow sensitivity; corporate governance;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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