Corporate Financial Surpluses and Allocation of Internal Cash Flow in Japan: Microdata Analysis by Enterprise Size Based on Financial Statements Statistics of Corporations by Industry

This paper uses annual survey slips data in the Ministry of Finance’s Financial Statements Statistics of Corporations by Industry (FSSCI) to analyze the stylized facts and determinants of financial surpluses (excess savings), cash holdings, and allocation of internal cash flow in enterprises with a wide range of capital sizes for the 20 years between 1996 and 2015 when the corporate sector continued to record financial surpluses or excess savings. The estimation results of the excess savings function and the cash holdings function identified the influence of financial constraints in small and micro enterprises and in preparation for lumpy investment as one of the factors behind excess savings and cash holdings. While no behavior of expanding savings to accumulate cash or repay debt was identified, the results indicated the possible excessive accumulation of cash caused by corporate governance problems in firms featuring business diversification and larger boards. The estimation results of the cash flow usage function confirmed that the propensity to spend changed in the direction of giving priority to securing liquidity after the Global Financial Crisis around 2008, and that smaller firms had a higher propensity to spend on cash accumulation. Meanwhile, firms featuring business diversification and larger boards tend to restrict the outflow of cash. This tendency is strong particularly among major firms. Even if major firms accumulate cash in preparation for future investment, M&A and FDI are in mind rather than domestic plant and equipment investments.