The government’s new push to encourage companies to use their cash for longer-term growth is raising concerns it will lead to unprofitable investments and erode corporate value.
Guidance by the economy ministry last month urging firms to focus more on mid- to long-term growth, with the aim of boosting capital spending and wages, is at odds with the Tokyo Stock Exchange (TSE)’s directive to improve how companies are run, according to analysts.
“There’s much more of a risk of losses, as well as deterioration in corporate value, if companies rush to unprofitable investments,” said Ryohei Yanagi, a visiting professor teaching corporate governance at Waseda University. Growth investment should only be made if expected returns exceed a firm’s cost of capital and create value, he said.
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