Cash Valuation Assessment of Japanese Corporations: When 100 Yen Is Valued at 50 Yen

  • Ryohei Yanagi


This chapter presents the book’s initial proposal for promoting constructive dialogue. It unwraps the entrenched hypothesis of cash value discounting in a manner different from previous studies. It identifies the ideal solution sought by the corporate governance (CG) reforms and the Ito Review. It makes a key correlation between value creation (capital efficiency) and corporate governance. The chapter begins by considering why foreign investors discount 100 yen on the books of Japanese companies to 50 yen. That cash held by Japanese companies exceeds their market capitalization shows the market’s (especially foreign investors’) concerns about agency cost and value-destructive investments of Japanese companies. Previous empirical research (Ditmmar and Mahrt-Smith 2007) attributes the discounting of cash held by US companies to poor corporate governance. Jensen’s free cash flow hypothesis (Jensen in Am Econ Rev 57:283–306, 1986) argues that companies holding excess cash routinely invest in low-yield, value-destroying projects. Although existing empirical research is centered upon US firms, this chapter introduces the author’s latest empirical research applied to Japanese companies, proving 50% discount of cash value using 2005–2016 Tokyo Exchange data. In addition, I offer qualitative research from a global investor survey alongside quantitative evidence for Japan. The chapter concludes with suggestions for improving cash value from survey results that show that only improving corporate governance and capital efficiency will motivate investors to value 100 yen as 100 yen or more.


Value of cash Corporate governance discount Agency cost Cross-shareholdings 


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© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.EisaiBunkyōJapan

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