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Firms' Cash Holdings and Performance: Evidence from Japanese corporate finance

Listed author(s):
  • SHINADA Naoki

This paper uses panel data from Japanese listed firms during 1980-2010 to analyze the factors that influence firms' cash holdings and determine whether cash holdings are related to corporate performance and values. It is demonstrated that firms have increased cash holdings because of the trend of higher cash flow uncertainty since the 1990s, and, especially in the 2000s, due to the continuous availability of low-cost funding. It is also shown that with large investment opportunities, the positive relationship between cash holdings and firms' returns on assets and values has weakened in recent years, although external investors have highly valued firms since 2008. It is implied that under a sudden deterioration in the economy, conservative cash holdings could temporarily increase firms' market values, but, in the long run, a highly conservative liquidity management policy would weaken firms' profitability on assets.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12031.

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Length: 36 pages
Date of creation: May 2012
Handle: RePEc:eti:dpaper:12031
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  1. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 33-60.
  2. Koichi Ando & Keiichi Hori & Makoto Saito, 2009. "On the Determinants of Corporate Cash Holdings in Japan: Evidence from Panel Analysis of Listed Companies [in Japanese]," Global COE Hi-Stat Discussion Paper Series gd09-081, Institute of Economic Research, Hitotsubashi University.
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