Corporate Governance and Cash Holdings : Evidence from Japan

Research Question/Issue: The study compares corporate governance and its impact on cash holdings (CH) between shareholder-perk (SHP) and non-shareholder-perk (NON-SHP) firms in Japan. We use the t-test, fixed effects, and generalized method of moments (GMM) to examine 3522 firms from 2005 to 2018.Research Findings/Insights: The main findings show that higher CH due to a higher proportion of independent and female directors suggests lower agency costs. In comparison, lower CH due to the large board size and a higher number of executive and male directors is consistent with agency theory. We find evidence that board size, executive directors, and independent directors play similar roles in both firms. For board diversity, male directors discourage while female directors encourage CH in SHP firms. Additionally, their entrenched behaviour is reduced when male directors act as independent directors or serve in executive positions. The results are robust to an array of additional analyses.Theoretical/Academic Implications: This study expands the literature on corporate governance and CH by offering evidence of the heterogeneity effect. In the literature, CH’s factors are analyzed separately from the corporate governance, firm characteristics, or macro-environment perspectives. At the same time, this study combines the board characteristics with SHP policy, confirming the heterogeneity effect of corporate governance on CH policy.Practitioner/Policy Implications: The study guides practitioners in understanding the importance of board attributes in different operational environments