The following post comes to us from Meng Li and Douglas Skinner, both of the Booth School of Business at the University of Chicago, and Kazuo Kato of the Osaka University of Economics.
In our paper, Is Japan Really a “Buy”? The Corporate Governance, Cash Holdings, and Economic Performance of Japanese Companies, which was recently made publicly available on SSRN, we investigate whether the governance practices of Japanese companies, as manifested in their holdings of cash, have improved over the past two decades, and whether any such improvements translate into improved economic performance. We find that, in general, some of the differences between Japanese and U.S. companies that were evident during the 1990s have become less pronounced over the past 10 years but that important differences remain. While overall levels of cash holdings are now roughly the same for U.S. and Japanese companies, when we condition on firm characteristics we find that Japanese firms still hold substantially more cash than U.S. firms. We do find, however, that regressions of the determinants of firms’ cash holdings developed using U.S. data (e.g., Opler et al., 1999; Bates et al., 2009) fit Japanese firms better in the 2000s than in the 1990s, suggesting that Japanese managers now pay more attention to the economic determinants of their firms’ cash holdings, consistent with improved governance.