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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