Cash holdings and corporate culture in Japan
Investors frequently criticise Japanese corporations for excessive cash holdings. Meanwhile at the macroeconomic level, there is a clear shift in the bulk of savings from households to corporations. However, there are substantial differences in cash holdings in the cross-section of firms as well as the time series. Research has shown that diversity of culture in a firm’s multinational operations can explain cash holdings in addition other variables revealed in recent research, such as R&D spending and intangibles. This paper investigates the impact of cultural heterogeneity on Japanese multinational firms’ cash holdings using Hofstede’s cultural dimensions to measure the cultural distance between the Japanese corpora- tion and its subsidiaries. We also examine two financial factors that reflect international influences on decision-making in Japanese corporations, the shares of overseas sales and foreign shareholding. Firms’ share of overseas sales to net sales is positively and significantly related to their cash holdings. However, contrary to the finding for US multinationals, we find little support in the data for the explanatory power of cultural heterogeneity. The foreign shareholding ratio does not explain cash holdings once the usual financial controls are introduced.
Cashholdings, Corporate culture, Foreign shareholding, Japanese corporations, Multinationals, Overseas sales