Accounting Letters

Article in Press
Accounting Letters

TheAccountingandEconomicAssociationofJapan

Volume1,Issue12024
pp.XX-XX

Accounting Comparability and Cash
Holdings of Japanese firms
Wenjun Kuang
OsakaUniversity
Submitted:June20,2023;Revised:November28,2023;AcceptedDecember12,2023;
AvailableonlineXXXXXX,2024
Abstract
I examine how accounting comparability affects the cash holdings of Japanese firms in this study. Using a sample of 16,542 observations during 2008-2019, I find that accounting comparability is negatively related to the
cash holdings. This result indicates that financial statement comparability reduces managers' precautionary andagency motives for cash holdings. My findings suggest that financial statement comparability plays an importantrole in decreasing information asymmetry and facilitating external monitoring of corporate resource allocation.
Overall, the results of this study provide investors and regulators with useful implications on the importance ofcomparability in the capital market.
Keywords: accounting comparability; cash holdings; external monitoring; information asymmetry

1 Introduction
LargecorporatecashsavingofJapanesefirmsisgettingmuchattentionintheindustryandacademia.Forexample,HondaandUesugi(2022)findthattheaverageratioofcashholdingstoassetsisabout20%forJapanesefirmsduring2019-2020,whichishigherthantheaverageratioofIappreciatehelpfulcommentsfromProfessorAtsushiShiibaandanonymousreferees.IamalsogratefultoProfessorShin-ichiroOnoandProfessorShotaOtomasafortheiroutstandingresearchsupport.
CorrespondingAuthor:WenjunKuang,1-7,Machikaneyama,Toyosaka,Osaka560-0043,Japan.
©2023TheAccountingandEconomicAssociationofJapanAllrightsreserved.

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Accounting Letters, Volume 1, Issue 1 (2024)

16.8%for26mostlyadvancedcountriesin2018.1Sincelargecashholdingsaresymptomaticofpoorgovernanceandpreventfirmsfromefficientresourceallocationandcapitalinvestmentopportunities(Katoetal.,2017;AoyagiandGanelli,2017),ithurtsthecountry'slongstandinggrowthstrategy.2AccordingtotheSecuritiesandExchangeCommission(SEC,2000),theefficientallocationof
capitalcanbefacilitatedwheninvestorsmakejudgmentsaboutcomparableinvestments.Comparabilityenablesinvestorstodetectmanagers'expropriationsofcorporateresourcesanddisciplinemanagerial misconduct (Kim et al., 2021). Given the decreased information asymmetry and enhancedgovernanceresultingfromcomparablefinancialreporting,managersarelesslikelytomisusecorporateresourcesanddestroyshareholdervalue.Therefore,Iarguethatcomparabilityaffectsmanagers'resourceallocationdecisions,asreflectedinthemoreefficientuseofcash.
Specifically,Ihypothesizethatthereisanegativeassociationbetweenaccountingcomparabilityandcorporatecashholdings.Priorstudiesindicatetwoprimarymotivesforcorporatecashholdings: (1) the precautionary motive and (2) the agency motive (Bates et al., 2009; Amess et al.,
2015).Ononehand,comparabilityimprovesfirms'informationenvironmentsanddecreasesexternalfinancingcosts(Kimetal.,2013;Imhofetal.,2017),whichmaymitigatefirms'precautionarymotivesforholdingcash.Ontheotherhand,comparabilityreducesmonitoringcostsandenhances
external governance (Kim et al., 2016). This helps mitigate the agency problem associated with
cash(Annetal.,2020).Therefore,Ipredictthataccountingcomparabilityisnegativelyrelatedto
thecashholdings.
Totestthisprediction,IfollowDeFrancoetal.(2011)andmeasurecomparabilityasthedegreetowhichfirmswithsimilareconomiccharacteristicshavesimilaraccountinginformation.Usinga
sampleof16,542firm-yearobservationsfrom2008to2019,Ishowthatfirmswithcomparablefinancialstatementsholdlesscash.Specifically,Ifindthataonestandarddeviationincreaseincomparabilitymeasuresreducescashholdingsby3.550%fromthemean,whichiseconomicallysignificant.Theresultsarerobusttoalternativemeasuresofcomparabilityandcashholdings.
Thisstudyaddstotheliteratureinthefollowingways.First,thisstudycontributestotheresearchonthedeterminantsofcashholdingsbyusingtheJapanesesetting,whereextremelylarge
cashholdingshaveresultedinalowgrowthrate.3Second,thisstudyenrichestheliteratureonthe
effectofcomparabilityonfirms'realoperationdecisions.Althoughpriorstudieshaveinvestigated
theinfluenceofaccountingcomparabilityonanalystbehaviours(DeFrancoetal.,2011)andcrash
risk(Kimetal.,2016),thereislimitedevidenceonwhethercomparabilityaffectsmanagers'real Particularly,JapanesefirmshaveincreasedtheircashholdingssincetheoutbreakoftheCOVID-19crisis.Forexample,HondaandUesugi(2022)showthatthecashholdingsofJapanesefirmsincreasedfrom19.5%oftotalassetsinthepre-crisisperiodto21.4%inthesecondquarterof2020,suggestingthattheratioofcashtoassetsincreasedsignificantlyaftertheoutbreakofthepandemic.
2
 Please see "A $2.5 trillion problem", The Economist, September 27, 2014. Available at: https://www.economist.com/leaders/
2014/09/27/a-25-trillion-problem(June10,2023)
3
 For example, Yasui (2021) indicates that the real GDP growth rate has been below the government's goal of 2%, and thenominalGDPhasfallenfarshortofthetargetof600trillionyenin2020.
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Wenjun Kuang, Accounting Comparability and Cash Holdings of Japanese firms

operatingdecisions.Thisstudyaddressesthisquestionbyexaminingtheeffectsofcomparability
oncashmanagementpolicy.Finally,myfindingsshouldbeimportanttoinvestorsandregulators
whoareinterestedinthemechanismsthatcanimprovethegrowthoffirms.
2 Literature Review and Hypothesis Development
Japanesefirmsareknownfortheirhighcashholdingscomparedtootheradvancedcountries.For
example,AoyagiandGanelli(2017)findthattheaverageratioofcashandcashequivalentholdings to the market capitalization of listed companies during 2004-2012 was above 40% in Japan,
largerthan15-27%inotherG-7countries.Katoetal.(2017)findthatthemeanratioofcashto
assetsforJapanesefirmsis17.2%(median13.1%)in2005,higherthan16.0%forUSfirms(median
9.6%).Thenumbersthenincreaseto18%(15%)in2010and2011.
According to the prior studies, there are two key theoretical perspectives on corporate cash
holdings:(1)theprecautionarymotiveand(2)theagencymotive(Batesetal.,2009;Amessetal.,
2015).Thefirstmotiverelatestofuturefinancialconstraintsandtheretentionofcashforinvestmentpurposes,whichissuggestedtobeanimportantfactorforcashholdingsinJapan,especially
afterinfluentialeconomiceventssuchasthecollapseofLehmanBrothersin2008andtheGreat
EastJapanEarthquakein2011(Kawaseetal.,2015;Nakaoka,2019).Thesecondmotiverelatestothe potential misuse of corporate resources by managers for personal interests, which is constrainedbythecorporategovernancesystem(Katoetal.,2017;NguyenandRahman,2020).Prior
studiesdocumentthattheweakcorporategovernancesystemcontributestothehighcashholdingsinJapanesefirms(AoyagiandGanelli,2017;Katoetal.,2017).4
Accounting comparability may affect the above two motives of corporate cash holdings. First,
comparablefinancialinformationcanreducetheprecautionarymotiveoffirms.Accordingtothe
peckingordertheory,firmspreferinternalfinancingoverexternalfinancinganddebtoverequity
(MyersandMajluf,1984).Duetotheinformationasymmetrybetweenfirmsandoutsideinvestors,
firmsmayfacehigherexpectedfinancingcostswhenraisingexternalfinance(OzkanandOzkan,
2004).Asaresult,managerstendtoholdcashtoaccommodateeconomicuncertaintyandunexpectedinvestmentopportunities(Clarksonetal.,2020;HondaandUesugi,2022).5Sinceaccountingcomparabilityenablestheusersoffinancialreportingtomakesharperinferencesabouteconomic
similaritiesanddifferencesacrosscomparablefirmsandhelpsinvestorsbetterevaluatethevaluationoffirmsrelativetootherpeerfirms(DeFrancoetal.,2011),greaterfinancialstatementcom Forexample,AoyagiandGanelli(2017)findthatimprovedcorporategovernancecouldreducecorporatecashholdingsinJapan.Katoetal.(2017)findthatJapanesefirmshavereducedtheircashholdingsby3%to4%since2000(governancereform).Moreover,theyindicateaninverserelationshipbetweenchangesintheexcesscashholdingsandimprovementinfirmperformancesince2000.
5
 Particularly,HondaandUesugi(2022)arguethatthemacroeconomicuncertaintyindexandtheeconomicpolicyuncertainty
indexhavereachedthetippingpointintwodecadesinJapan,whichleadstoanincreaseindemandforprecautionarycash
holdings.
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Accounting Letters, Volume 1, Issue 1 (2024)

parabilitydecreasestheinformationasymmetryandimprovestheinformationenvironment(Kimetal.,2016).Thiscanreducefirms'costsofequity(Imhofetal.,2017)andcostsofdebt(Kimet
al.,2013).Specifically,Imhofetal.(2017)findthatthereisanegativeassociationbetweencomparabilityandcostofequityandthisrelationisstrongerwheninformationasymmetryishigh.Kim
etal.(2013)findthatcomparabilityissignificantlynegativelyassociatedwithfirms'creditriskby
reducingdebtmarketparticipants'informationuncertainty.Therefore,firmswithhigheraccountingcomparabilitycanuseexternalfinancingatacheapercostandaredisincentivisedtoholdcash
tominimizethefinancingcosts.
Second,comparabilitycanconstrainmanagerialagencymotivetoholdexcesscash.Accordingto
theagencytheoryframework,managersmayholdlargereservesofcashtoundertakeinefficient
investmentssuchasnegativeNPVprojects,whichcanberegardedasanimportantagencyproblem-the free cash flow problem (Jensen, 1986).6 The improvement in corporate governance can
mitigatethisfreecashflowissue(Katoetal.,2017).Forexample,investorsmayforcemanagerstodistributeexcesscashtoutilizeitmoreeffectivelyelsewhere(NguyenandRahman,2020).As
comparabilityenablesinvestorstobetteridentifyandunderstandtheprofitabilityofafirm'sprojectsbymakingcomparisonswiththedisclosureofitspeerfirms(Kimetal.,2021),investorscan
monitormanagers'behavioursmoreeasilyanditwouldbecomedifficultformanagerstoconcealtheresultsoftheirpoorresourceallocationdecisionsrelatedtocashholdings.Forexample,Annetal. (2020) find that firms with higher accounting comparability have a higher marginal value of
cash holdings, suggesting that comparability mitigates the agency problem associated with cash
holdings.Similarly,Kimetal.(2021)findthatcorporatecashholdingsinfirmswithhighercomparabilityarevaluedhigherbythecapitalmarketthaninfirmswithlowercomparability.Giventhat
highcomparabilityimprovescorporategovernancebyenhancingmonitoringbyinvestorsandenabling shareholders to better discipline managerial behaviours when using corporate resources
(Kimetal.,2021),managersarelesslikelytousetheirdiscretioninholdingexcesscash.
Theaboveargumentsleadtothefollowinghypothesis:
H1:Accountingcomparabilityisnegativelyrelatedtothecashholdings.

3 Research Design
3.1 Measures of accounting comparabilityIfollowDeFrancoetal.(2011)tomeasurefinancialstatementcomparability.Specifically,Ifirst
estimatethefollowingregressionusingthemostrecent16quartersofearningsandstockreturns:
6

 Consequently,shareholdersvaluefirms'cashholdingsataconsiderablediscount,whichmakesthemarketvalueofanadditionaldollarofcashholdingslessthan$1(Annetal.,2020).

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Wenjun Kuang, Accounting Comparability and Cash Holdings of Japanese firms(1) is the quarterly net income before extraordinary items scaled by the market

where

valueofequityatthebeginningofthequarter,andistherawbuy-and-holdstockre-turnduringquartert. Theestimatedcoefficients and proxyforfirmi'saccountingsystem.
7ThenImeasuretheexpectedearningsoftwoaccountingsystemsoffirmsiandj(and)byusingtheeconomiceventsoffirmiandtheestimatedcoefficientsofboth

firmiandfirmj,asfollows:


(2)



(3)

Thecloseness(comparabilityscore)betweentwoaccountingsystemsoffirmsiandjismeasuredastheaverageabsolutedifferencebetweenexpectedearningsforeachfirmi-jpairovertheprevious16quartersmultipliedbynegativeone,asfollows:

(4)

capturesthedistancebetweentwofirms'accountingfunctions.Iftwofirmshavecomparableaccountingsystems,theirfinancialstatementswillbesimilariftheyhaveexperienced
thesameeconomicevents(DeFrancoetal.,2011).Thus,thedistancebetweenfunctionswillbe
smallerformorecomparableaccountingsystems.Therefore,representsthecompa-

rabilitylevelbetweenthefirms.
Followingpriorstudies(Kimetal.,2016;Annetal.,2020;Kimetal.,2021),Igeneratetwofirmyearmeasuresofcomparabilityforeachfirmiinyeart:(1)theaverage
jinthesameindustryasfirmiduringyeart(ACC_IND)and(2)themedianforallfirms
forallfirmsjinthesameindustryasfirmiduringyeart(ACC_Median).Greatervaluesofcomparabilitymeasuresindicatehighercomparabilitybetweenfirmianditspeers.
3.2 Research ModelToinvestigatetheeffectofaccountingcomparabilityoncashholdings,Ifollowpreviousliterature(Habibetal.,2017;NguyenandRahman,2020;Clarksonetal.,2020)toestimatethefollowing
modeltotestH1:
 Followingpreviousstudies(Kimetal.,2016;Habibetal.,2017;Neel,2017),Iusetherawquarterlystockreturnstocalculate
comparability.Specifically,Iemploythebuy-and-holdstockreturnasinpreviousliterature(e.g.,Brochetetal.,2013;Neel,2017).Aspriorstudies(e.g.,Brochet,etal.,2013)havealsousedcumulativemonthlyreturnstocalculatecomparability,Ialso
repeat the analysis using comparability measures estimated on cumulative monthly returns. Please refer to Panel E, Table
A-1intheOnlineAppendix.

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Accounting Letters, Volume 1, Issue 1 (2024)

(5)

wherethedependentvariableisafirm'scashholdings(CASH)measuredascashandcashequivalentsscaledbytotalassets.ACCisaccountingcomparabilitymeasuredusingACC_INDorACC_
Median.SinceIhypothesizethatcomparabilitydecreasescorporatecashholdings,anegativecoefficient on ACC supports H1. Following Habib et al. (2017) and Nguyen and Rahman (2020), I
includeyearandindustrydummiestothemodel.Ialsoincludeasetofcontrolvariablesthathave
beensuggestedbypriorstudies(e.g.,OzkanandOzkan,2004;Habibetal.,2017;Annetal.,2020;
Kimetal.,2021;HondaandUesugi,2022).ThedefinitionsofcontrolvariablesarelistedinAppendixA.

4 Results
4.1 Sample selection
IobtainfinancialinformationandstockdatafromtheNikkeiNEEDSFinancialQUESTdatabase.
Followingpriorstudies,Iexcludethefollowingobservations:(1)firmsworkinginbanking,securities,andinsurance,(2)firm-yearobservationswiththenumberofmonthsinafiscalperiodnot
equalto12andobservationsthatchangedtheaccountingperiodduringtheanalysisperiod,(3)
observationswithmissingvaluesrelatedtoaccountingcomparabilityandcashholdings,and(4)
observationswithmissingdataforcontrolvariables.Myfinalsampleconsistsof16,542firm-year
observationsfrom2008to2019.Allcontinuousvariablesarewinsorizedby1%toreducetheinfluenceofoutliers.8
4.2 Descriptive statistics
Table 1 presents the descriptive statistics of the variables used in Model (5).9 Panel A showsthe distributional statistics for full samples. The measure of cash holdings (CASH) has a mean(median)of0.169(0.140).10Themean(median)valuesofACC_INDandACC_Medianare-0.018
 IfollowWakabayashi(2016,2018)toincludefirmsapplyingIFRSandGAAPduetothefollowingreasons:First,J-GAAPcanbeconsideredequivalenttoIFRSsincetheAccountingStandardsBoardofJapanandtheInternationalAccountingStandards
BoardlaunchedaprojecttoachieveconvergencebetweenJ-GAAPandIFRSin2005(Gu,2021).Second,Mukai(2017)finds
that the application of IFRS does not decrease comparability with J-GAAP firms. Thus, I conjecture that accounting standardsareunlikelytosignificantlyaffectthemainresults.Additionally,IalsorepeatdataanalysisonJ-GAAPfirmsandfindmymainresultshold.
9 PleasenotethatIfollowpreviousstudies(e.g.,ShinandKolari,2004;MoriyasuandUchida,2011)toreplacethemissingvaluesofRDwithzeroforsampleswithoutmissingvaluesinmainvariables(e.g.,EarningsandSales)infinancialdata.
10
The trend in cash holdings (untabulated) shows that firms have significantly increased cash holdings after the collapse of
LehmanBrothersin2008andtheGreatEastJapanEarthquakein2011,whichisconsistentwiththosereportedinpriorstudies(Kawaseetal.,2015;Katoetal.,2017;Nakaoka,2019;NguyenandRahman,2020).Moreover,thesampledistribution(untabulated)alsoshowsthatthetimetrendofcomparabilityandthesampledistributionbyindustriesareconsistentwiththeresultsofWakabayashi(2018).
8–6–

Wenjun Kuang, Accounting Comparability and Cash Holdings of Japanese firms(-0.015)and-0.015(-0.011),respectively,whicharelargerthanthosedocumentedinpriorstudies(e.g.,Kimetal.,2016;Habibetal.,2017;Annetal.,2020).PanelAalsoshowsthattheaverageoperatingcashflow(CFO)is0.058andthemeanofcashflowvariability(Variability)is0.034.These
results are consistent with those reported by Nguyen and Rahman (2020) and Harford et al.(2008),respectively.11
PanelBreportstheteststatisticsforthecomparisonoftwogroupswithhighandlowaccountingcomparability.12AsshowninPanelB,themeanvalueofcashholdingsforthehigh-comparabilitygroupis0.165,whilethelow-comparabilitygrouphasameanof0.173,indicatingthatsampleswithhighcomparabilityhavesignificantlylowercashholdingsthanthosewithlowcomparability.

Table 1 Descriptive statistics
PanelA:Summarystatistics
CASH
ACC_IND
ACC_Median
SIZE
MTB
NWC
CAPEX
RD
CFO
Variability
CCC
LEV
Dividend
AQ

N
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542
16,542

Mean
.169
-.018
-.015
10.342
1.233
.071
.038
.020
.058
.034
.530
.475
.003
-.023

SD
.122
.011
.011
1.671
1.349
.152
.032
.044
.057
.033
.256
.193
.037
.020

Min
.005
-.104
-.102
5.939
.148
-.584
0
0
-.368
.001
.045
.049
0
-.205

p25
.083
-.020
-.016
9.108
.613
-.024
.015
0
.031
.014
.340
.325
0
-.027

Median
.140
-.015
-.011
10.140
.893
.076
.030
.007
.059
.025
.530
.475
0
-.017

p75
.221
-.011
-.008
11.427
1.368
.170
.051
.026
.088
.042
.680
.621
.001
-.011

Max
.811
-.005
-.004
14.97721.790
.521
.252
1.444
.331
.382
1.800
1.185
1.265
-.003

PanelB:Summarystatisticsbygroup

CASH
SIZE
MTB
NWC
CAPEX
RD
CFO
Variability
CCC
LEV
Dividend
AQ

LowAccountingComparability
N
Mean
Median
8,269
.173
.144
8,269
9.888
9.689
8,269
1.236
.844
8,269
.059
.062
8,269
.036
.026
8,269
.019
.005
8,269
.050
.053
8,269
.041
.029
8,269
.552
.547
8,269
.516
.525
8,269
.004
0
8,269
-.028
-.021

HighAccountingComparability
N
Mean
Median
8,273
.165
.136
8,273
10.79510.647
8,273
1.230
.950
8,273
.083
.088
8,273
.039
.033
8,273
.021
.010
8,273
.066
.064
8,273
.027
.021
8,273
.508
.513
8,273
.434
.428
8,273
.003
0
8,273
-.018
-.014

T-Statistic
t-value
4.347***-36.288***0.275-10.234***-6.716***-2.082**-17.417***27.962***
11.197***28.186***1.825*-32.358***

Allcontinuousvariablesarewinsorizedat1and99percentiles.PleaseseeAppendixAforallvariabledefinitions.
Specifically, Nguyen and Rahman (2020) find that the average of operating cash flows over assets is 0.0569. Harford et al.(2008)showthatthevolatilityofcashflowshasameanof0.040.
12
Specifically,Idividethefullsamplesintotwogroups(high-comparabilitygroupandlow-comparabilitygroup)basedonthe
medianvalueofACC_INDbyyear.ThenItestthedifferenceinvariablesbetweenthetwogroups.
11–7–Accounting Letters, Volume 1, Issue 1 (2024)

Table2providesthePearsoncorrelationmatrix.ThecorrelationsbetweenCASHandtwocomparabilitymeasures(ACC_INDandACC_Median)are-0.071and-0.068,respectively.Theaboveresultsindicatethatfirmswithhighercomparabilityarelikelytohavelesscash.Thisisconsistent
withthepredictioninH1.
Table 2 Pearson correlation matrix
Variables(1)CASH(2)ACC_IND(3)ACC_Median(4)SIZE(5)MTB(6)NWC(7)CAPEX(8)RD(9)CFO(10)Variability(11)CCC(12)LEV(13)Dividend(14)AQ(1)
1.000-0.071***-0.068***-0.144***0.239***
0.010-0.171***0.176***
0.076***
0.193***-0.087***-0.417***0.119***-0.203***

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

1.000
0.979***
0.315***-0.0120.145***
0.085***-0.017**
0.197***-0.296***-0.062***-0.242***-0.035***0.361***

1.000
0.331***-0.017**0.160***
0.078***-0.017**0.221***-0.286***-0.058***-0.252***-0.021***0.344***

1.000
0.204***
0.109***
0.167***
0.139***
0.250***-0.224***-0.006-0.084***-0.072***0.221***

1.000-0.149***0.086***
0.143***
0.094***
0.151***-0.143***0.052***
0.033***-0.184***1.000-0.180***0.189***-0.077***0.090***
0.449***-0.571***
0.008-0.022***

1.000
0.008
0.219***-0.103***-0.200***0.029***-0.015*0.097***

1.000-0.115***0.086***
0.248***-0.222***0.013*-0.054***1.000-0.155***-0.204***-0.146***
0.059***
0.141***

1.000
0.102***
0.053***
0.093***-0.539***1.000-0.038***-0.034***-0.097***1.000-0.060***-0.084***1.000-0.091***1.000

Allcontinuousvariablesarewinsorizedat1and99percentiles.*,**and***refertosignificancelevelat10%,5%and
1%,respectively.PleaseseeAppendixAforallvariabledefinitions.

4.3 Tests of Hypothesis 1
Table3presentstheregressionresultsfromestimatingModel(5).13Columns(1)and(2)showthatthecoefficientsforACC_INDandACC_Medianarenegativeandsignificantatthe1%level.
Intermsofeconomicsignificance,theresultincolumn(1)indicatesthataonestandarddeviation
increase in ACC_IND decreases corporate cash holdings(CASH) by 0.006(-0.559×0.011, where-0.559istheregressioncoefficientand0.011isthestandarddeviationofACC_IND).Similarly,theresultincolumn(2)indicatesthataonestandarddeviationincreaseinACC_Mediandecreasescorporatecashholdings(CASH)by0.006(-0.528×0.011,where-0.528istheregressioncoefficientand
0.011isthestandarddeviationofACC_Median).GiventhatthemeanCASHis0.169,theregressionresultssuggestthataonestandarddeviationincreaseinACC_INDorACC_MedianreducesCASH
by3.550%,whichiseconomicallysignificant.14Overall,theaboveresultssupportH1thatcomparabilityimprovestheallocationofcorporateresources,asreflectedinthedecreaseincashholdings.
The results of the control variables are generally consistent with those reported in previous
studies. For example, CAPEX and NWC have a significantly negative impact on cash holdings,
which is in line with Clarkson et al. (2020) and Honda and Uesugi (2022). RD and CFO have asignificantly positive impact on cash holdings, which is consistent with Nguyen and Rahman(2020).Inaddition,thecoefficientsofVariabilityarepositiveandstatisticallysignificant.ThisfindToaddresstheconcernforcollinearity,Icheckthevarianceinflationfactor(VIF)forvariables.TheresultsshowthatVIF
rangesfrom1.040to2.410,withameanvalueof1.900.Sincemulti-collinearityexistswhenVIFexceeds10,thereisnoproblemwithmulti-collinearitybetweenthedataofvariablesinthisstudy.
14
TheseresultsareconsistentwithHabibetal.(2017).Intheirstudy,theyfindthataonestandarddeviationincreaseinthedecileversionofcomparabilityreducescashholdingsby4.94%fromthemean.
13–8–

Wenjun Kuang, Accounting Comparability and Cash Holdings of Japanese firms

ingisconsistentwiththenotionthatfirmswithvolatilecashflowsarelikelytoholdmorecashto
mitigatetheriskofcashflowuncertainty(OzkanandOzkan,2004;HondaandUesugi,2022).15
Table 3 Accounting comparability and corporate cash holdings
ACC_IND(1)
CASH-0.559***(-2.922)

ACC_Median
SIZE
MTB
NWC
CAPEX
RD
CFO
Variability
CCC
LEV
Dividend
AQ
Constant
Year,Industry
Observations
Adj.R-squared-0.007***(-6.420)0.014***(7.636)-0.323***(-17.436)-0.718***(-16.529)
0.309***(5.442)0.134***(4.506)0.314***(6.362)0.006(0.551)-0.400***(-25.877)
0.146***(4.171)-0.510***(-5.906)
0.341***(20.596)Control
16,542
0.507

(2)
CASH

-0.528***(-3.021)-0.007***(-6.355)
0.014***(7.628)-0.323***(-17.413)-0.717***(-16.518)
0.308***(5.409)0.136***(4.597)0.313***(6.350)0.006(0.559)-0.401***(-25.894)
0.147***(4.218)-0.510***(-5.891)
0.340***(20.601)
Control
16,542
0.507

Thet-valuesinallcolumnsarebasedonstandarderrorsclusteredbyfirm.*,**and***refertosignificancelevelat
10%,5%and1%,respectively.PleaseseeAppendixAforallvariabledefinitions.
Ithenconductaseriesofrobustnesstests.ThefollowingresultsarepresentedinTableA-1intheOnlineAppendix.First,IfollowHabibetal.(2017)andClarksonetal.(2020)togeneratethelogvalueofthecash-to-assetsratio(LN_CASH)tomeasure cash holdings. Panel A of Table A-1 shows the results of the robustness test based on LN_CASH. The coefficients ofcomparabilityaresignificantlynegativeatthe1%level.Second,IfollowKimetal.(2016)andAnnetal.(2020)tousethefollowingtwoalternativemeasuresofcomparability:(1)Prices Lead Earningsmeasuresofcomparability(ACC_IND_PLEand
ACC_Median_PLE) and (2) comparability measures based on the top-four firms for firm i in year t (ACC_4 and ACC_4_
PLE). As shown in Panel B, the coefficients of alternative comparability measures remain significant, suggesting that my
findingsarenotaffectedbytheuseofalternativemeasuresofcomparability.Third,Iattempttomitigatetheconcernthatmy
resultsmightbeaffectedbydifferentsampleperiods.Specifically,Irepeattheanalysisfordifferentperiods:(1)usethesamplefrom2006and(2)excludesamplesin2008tomitigatetheeffectsofthefinancialcrisis.TheresultsareshowninpanelC.
Fourth,itisplausiblethattherelationshipbetweenstockreturnandearningsisstrongerforannualdatathanquarterlydatainJapanbecauseannualdataismoreimportantintheJapanesecapitalmarket.Toalleviatethisconcern,Iconducttheanalysisbasedontheaccountingcomparabilityestimatedontheannualfinancialdatabase,theresultsofwhichareshowninPanelD. Panel E shows the results of accounting comparability estimated on cumulative stock return. Overall, Table A-1 showsthatmyresultsarerobusttotheabovetests.PleaseseeTableA-1intheOnlineAppendixfordetails.

15

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Accounting Letters, Volume 1, Issue 1 (2024)

5 Conclusion
ExtremelylargecashholdingsinJapanhaveresultedinalowgrowthrateintheeconomy(Yasui,
2021).Thus,itisnecessaryforJapanesefirmstostopcashhoardingandengageininvestmentactivities.Inthisstudy,Iexaminehowaccountingcomparabilityaffectscorporatecashholdings.
Usingasampleof16,542firm-yearobservationsfrom2008to2019,Ishowthataccountingcomparabilityisnegativelyrelatedtothecashholdings.Specifically,Ifindthataonestandarddeviationincreaseincomparabilitymeasuresreducescashholdingsby3.550%fromthemean,whichis
economically significant. These results are robust to alternative measures of comparability and
cashholdings.Myfindingssuggestthatfinancialstatementcomparabilityplaysanimportantrolein decreasing information asymmetry and facilitating external monitoring of resource allocation.
Overall,theresultsofthisstudyprovideinvestorsandregulatorswithusefulimplicationsonthe
importanceofcomparabilityinthecapitalmarket.
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Accounting Letters, Volume 1, Issue 1 (2024)

Appendix A
Variable
Cash holdings
CASH
Accounting Comparability
CompAcct
ACC_IND
ACC_MedianControl Variables
SIZE
MTB
NWC
CAPEX
RD
CFO
Variability
CCC
LEV
Dividend
AQ

Robustness Tests
LN_CASH
ACC_IND_PLE
ACC_Median_PLE
ACC_4
ACC_4_PLEDefinitionofvariable
Cashandcashequivalentsscaledbytotalassetsinyeart.
Negativeonemultipliedbytheabsolutedifferencebetweentheexpectedearnings
using firm i's and j's estimated coefficients, respectively. Firms i and j are in thesametwo-digitNikkeiindustry.
forallfirmsjinthesameindustryasfirmiduringyeart.
Theaverageforallfirmsjinthesameindustryasfirmiduringyeart.
ThemedianThelogvalueofthemarketvalueofequityinyeart.
Themarketvalueofequityscaledbythebookvalueofequity.
Workingcapitalminuscashandcashequivalentsdividedbytotalassets.
Thecapitalexpendituredividedbytotalassets.
Researchanddevelopmentexpensesdividedbytotalassets.
Theratioofoperatingcashflowstototalassets.
Thestandarddeviationofoperatingcashflowsscaledbytotalassetsovertheprevious3years.
The sum of the inventory conversion period, receivable collection period, and thepayabledeferralperiod.
Thesumofshortandlong-termdebtscaledbytotalassets.
Theratioofdividendpaymentstototalassets.
AccrualqualitymeasurecalculatedasthestandarddeviationofresidualsfromthefollowingDechowandDichev's(2002)modelduringthepastfiveyearsandmultipliedby-1:

Thelogvalueofthecash-to-assetsratio.
Prices Lead EarningsmeasureofACC_INDthatiscalculatedbasedonthepricesleadingearningsmodel.
Prices Lead EarningsmeasureofACC_Medianthatiscalculatedbasedonthepricesleadingearningsmodel.
Theaverageoffirmi'sfourhighestcomparabilityscoresduringyeart.
Prices Lead EarningsmeasureofACC_4thatiscalculatedbasedonthepricesleadingearningsmodel.

– 12 –