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Bank power and cash holdings: Evidence from Japan, Working paper

By Lee Pinkowitz and Rohan Williamson

Abstract

Using a sample of firm years from the United States, Germany and Japan, we examine the effect of bank power on the cash holdings of firms. We show that firms in Japan have higher cash holdings than those in the US or Germany, which indicates that there are possible agency problems associated with a bank centered system that lacks another source of monitoring. Through an analysis of the Japanese firms we show that the high cash levels are correlated with power of the banks. During periods of high bank power, firms ’ cash holdings seem to be consistent with banks extracting rents, yet when the banks are weaker, firms appear to hold cash for precautionary reasons. We conclude that the Japanese banks persuade firms to hold higher cash balances than firms in the US and Germany. This is contrary to widely held beliefs of the Japanese governance system

Topics: thank Jim Angel, Allan Eberhart, Jeff Harris, Jarrad Harford, Jan Jindra, Andrei Shleifer
Year: 1998
OAI identifier: oai:CiteSeerX.psu:10.1.1.198.2905
Provided by: CiteSeerX
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