The development, determinants and valuation of cash holdings of Japanese companies (PDF)

Seminar paper from the year 2022 in the subject Business economics - Investment and Finance, grade: 1,3, University of Hamburg, language: English, abstract: Why would companies hold cash in their bank accounts, when cash itself does not produce any further value like an investment in a machine does? The academic literature finds different concepts for the reasons of corporate cash holdings. While Keynes (1936) proposes a transaction- and precautionary-motive to hold cash, Jensen (1986) states that managers have a vested interest to accumulate cash, because it exempts them from capital market disciplining. However, country-specific factors and reforms in Japan might also induce the companies to save up liquid assets.

The aim of this paper is to study the development, determinants and valuation of Japanese corporate cash holdings in the period from 1988 to 2021, based on the approach of Bates et al. (2009). Furthermore, I want to study how the roles of theoretical cash holding motives and corporate governance (reforms) in Japan are reflected in the three objects of research from above. Since the variables only proxy the theoretical motives, the object of this paper is not to create clear boundaries but to give an insight in the possible forms of their appearing.

Therefore the next chapter gives a comprehensive overview about the academic literature regarding the theoretical background for corporate cash holdings and the current state of research of the interaction between corporate governance and cash holdings in Japan. The motives and findings from this section are revisited when explaining the results of the empirical part in this paper. The empirical part is divided in three main parts. The first part discusses the development of corporate cash holdings in general and for different kinds of companies. In the subsequent part, I put a focus on the factors that determine the cash holdings and how they serve as proxies for the theoretical motives, as discussed before. The last part shows how investors in Japan value cash holdings in general. Chapter 5 summarizes the findings.