Capital Cost and Financial Policies in Japanese Companies: Some Survey Findings

Authors: Akaishi M.¹; Baba T.¹; Muramatsu I.²

Source: Asian Business & Management, Volume 3, Number 2, June 2004 , pp. 263-276(14)

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Abstract:

Corporate finance theory holds that the cost of equity is the required rate of return of shareholders, and this important concept forms the basis of all decision-making. However, it has been frequently asserted that Japanese companies suppose equity cost to be mere out-of-pocket financing costs. In 1996 we sent a questionnaire to 3000 listed Japanese companies, and, from the findings of this survey, we present here evidence of how Japanese companies perceive the cost of capital, and whether or not these perceptions impact on financial decision-making. We found that the majority of Japanese companies regard equity cost not as the required rate of return to shareholders, but simply as dividends paid. Moreover, we found that this difference was not just one of terminology, but influenced all aspects of financial decision-making. As this survey was conducted in 1996, and since then there have been dramatic changes in the economic climate and system, there may also have been some shift in managerial awareness of Japanese companies; yet it would seem that even today the same tendency persists in Japanese companies, in comparison with Western countries.Asian Business & Management (2004) 3, 263–276. doi:10.1057/palgrave.abm.9200089

Document Type: Research article

DOI: http://dx.doi.org/10.1057/palgrave.abm.9200089

Affiliations: 1: aBusiness Administration Department, Konan University, 8-9-1, Okamoto, Higashinada-ku, Kobe, Hyogo 658-0072, Japan. , baba@konan-u.ac.jp, Email: akaishi@konan-u.ac.jp 2: bDepartment of Economics, Shiga University, 1-1-1, Baba, Hikone-city, Shiga 522-8522, Japan., Email: muramatu@biwako.shiga-u.ac.jp

Publication date: 2004-06-01