Dividend Policy in Crisis. Case of Japan 1991–2008

Abstract

Japan is a unique case for analyzing economic processes and business behavior under crisis. After the bubble economy that ended in 1989/1990, Japan experienced unprecedented long-lasting economic slowdown associated with highly ineffective monetary and fiscal policies that were aimed at stimulating economic activity. Short recovery periods after 1991 did not change the general downward trend and the global financial crisis that affected Japan in 2008 led to further deterioration. Questions posed in this paper are related to a general dividend policy conducted by companies listed at the Tokyo Stock Exchange (TSE) and its macroeconomic influence under specific socio-demographic circumstances. Formal testing in regression models covers responses to standard variables that are perceived in theory as crucial for shaping earnings distribution. The results for crisis (1991–2008) were benchmarked against estimates for the preceding period 1980–1990. Time series provided by the TSE and by the Cabinet Office are used to check the actual responses of dividend policy to growth rate of real GDP and several variables which describe the financial and economic circumstances of Japanese companies. The findings were cast against information about the structure of investor holding stocks in Japan and argue that the clienteles hypothesis may hold. In this particular case of the economy in crisis and with an aging society, demographic considerations may be playing a significant role in increasing the demand for liquid resources at pension funds.