Real Effects of Corporate Cash Holdings: Evidence from Japan

This study analyzes the real effects of cash holdings of Japanese companies. We quantitatively investigate whether differences in cash holdings immediately before a specific sample period after 2000 lead to differences in corporate behavior over the medium term. Specifically, we first investigate the period immediately after the Lehman shock in 2008 and analyze capital expenditures as real effects. The results clearly show that companies with high cash holdings immediately before the crisis make more capital investments in the post-crisis period than companies with low cash holdings. We also find that the difference is larger for tangible fixed assets than it is for intangible fixed assets. These results are similar to a preceding study in the UK that reported that differences in cash holdings create differences in companies' competitive advantage after the crisis. However, unlike in the UK, we also find that the real effects of cash holdings are almost equally apparent, regardless of the sample period chosen after 2000. Japanese companies experienced a domestic banking crisis in the late 1990s. It can be pointed out that the experience of the crisis motivated them to increase their tendency to hold cash, and that differences in the resulting cash holdings have led to differences in the real effects in Japan.