インドを含むアジア諸国における証券市場の発展と
財務会計制度の展開
著者
藤井 建人
インドを含むアジア諸国における証券市場の発展と財務会計制度の展開
(課題番号11630143) /
ノ平成11年度一平成14年度科学研究費補助金(基盤研究(C)(2))研究成果報告書
平成15年3月/
/研究代表者 藤井建,∼/
東北大学大学院緋学研究科教授/
インドを含むアジア諸国における証券市場の発展と財務会計制度の展開
(課題番号11630143)
平成11年度一平成14年度科学研究費補助金(基盤研究(C)(2))研究成果報告書
平成15年3月
研究代表者 藤井 建人東北大学大学院経済学研究科 教授
は し が き
本研究の目的は,インドを含むアジア諸国における証券市場の発展と財務会計制度の展開
についてその現状を比較して将来の課題を明らかにすることであった0
その基礎には,研究代表者(藤井 建人)が過去20数間取り組んできた米国の1910年
代から1930年代にいたる証券市場と財務会計制度との確立過程の研究があった｡すなわち,
米国での確立過程を一つのモデルにしながら,経済的にはいわゆる離陸(take･･ofOの最中に
あるアジア諸国における形成過程を比較検討するのが,本研究の課題であった｡
期間中,オーストラリア,マレーシア,シンガポール,中国,台湾,そして,香港の各国
において資料収集を行い,膨大な収集資料を分析した｡
この結果,つぎのことが判明した｡
第1に,マレーシアにおいては10カ年計画などの国家プロジェクトのもとで策定された,
マレー系,インド系,中国系などの各民族を基準にする株主構成目標数値が存在しており,
これが企業ガバナンスの中心であること｡
第2に,マレーシアでは,国家が強力な権限のもと,主な産業企業の主要株主となり,各
企業を実質的にコントロールしていること｡
第3に,マレーシア,オーストラリア,シンガポール,香港では,旧宗主国である英国の
影響が依然強く,英国を起源とする国際会計基準をほぼ自動的に採用していること｡
第4に,公認会計士の資格について,英国,オーストラリア,カナダ等々の英連邦構成国
で取得した資格を,そのまま,マレーシア,シンガポール,香港の各国内においても有効と
認めていること｡
第5に,中国では,復旦大学,北京大学をはじめ多くの機関の協力を得た｡中国の動向に
は大いに注意を要する｡中国では,英米の最近の展開を速やかに導入しようとする国家戦略
の下で財務会計･監査システムが構築されようとしており,会計士などの実務家の育成につ
いても同様である｡
研究成果については,つぎの通りである｡
村壇鳳先生(台湾,東呉大学),宮西賢次先生(滋賀大学)との共同研究により,日本におけ
る金融派生商品取引をめぐる巨額損失にかかわるディスクロージャーについて共同研究を
発表した｡
監査人選任と配当規制の2点に焦点をおきつつ,コーポレート･ガバナンス問題の視点か
ら各対象国の会社法の比較分析についての論文をまとめている｡
研 究 組 織
研究代表者:藤井 建人(東北大学大学院経済学研究科教授)
交付決定額(配分額)
(金療単位;千円) 直接経費 亊I ｨﾆ N 合計 平成11年度 涛 0 涛 平成12年度 都 0 都 平成13年度 塔 0 塔 平成14年度 ﾃ 0 ﾃ 総計 ﾃS 0 ﾃS 研 究 発 表(学会誌等)
藤井 建人, ｢4 ウォール･ストリート｣, 『アメリカを知る技法』竹中興慈,野家啓一,岩淵康民 編集代表,仙台･宝文堂,平成15年1月, 24･29頁｡
(口頭発表)ChiungFeng KO, Kenji MIYANISHI, and Tatsuto FUJII, "Derivatives and
Financial Reporting: The Japanese Financial Distress Cases, "
2002 Accounting Theory and Practice Conference, National Taipei University, 213 November, 2002
Derivatives and Financial Reporting: The Japanese
Financial Distress Cases
chiungFeng Ko+, Kenji Miyanishi'', Tatsuto Fujii'''
ABSTRACT
This paper investigates rlnanCial distress on derivativesand the subsequent financial
management of five Japanese companies-Showa Shell Sekiyu K･K･, Nippon Steel
Chemical Co., Sumitomo Corporation, Daiwa Bank,and Yakult Honsha Co.
We examine the contents of various financial statements and the role of the Japanese
corporate govemment mechanisms in fTacilitatlng the judgment of茄nancial distresses.
We hope to prove that dividend policy lS unchanged even if profitability is decreased.
Furthermore, there are strong positive correlations between interest rate derivatives and debt, as well as equlty. This paper also proves that the relation between block
shareholders'ownershipand丘rmvalue on book is negative and significant. The
implication being that Japanese block shareholders do not appear to a句ust the
ownership levels of their investment companies in response to changlng eCOnO血c p erforman ce.
Associate Professor, Department of Accounting, Soochow Umiversity, Taiwan, R.0.C. Associate Professor, Faculty of Economics, Shiga University, Japan
Derivatives and Financial Reporting: The Japanese Financial
Distress Cases
ChiungFeng Ko, Kenji Miyanishi, Tatsuto Fujii
Ⅰ. Introduction
Many companies of scale, such as LTCM (Long-ten Capital Management),
Sumitomo, Barings, Orange County, Metallgesellschaft, Showa Shell Sekiyu, Procter
and Gamble (P & G), Gibson Greetings,and numerous other firms sustained great
losseswith respect to derivatives in the previous 10 years. The largest seven
consistlng Ofthree Japanese companies, two U.S. institutions, one German metals and
oil-trading conglomerate, MetallgesellschaftAG, which lost $1.34 billion on energy derivatives February 1994, and one British bank, Britain's venerable Barings Bank which lost $1.4 billion on Nikkei indexfuturesand options February, 1995. T'he three Japanese compamies are Showa Shell Sekiyu ($1.58 billion on foreign currency forwards February, 1993), Kashima Oil ($1 ･45 billion on currency derivatives April,
1994), and Sumitomo Corporation ($1.8 billion on copperfutures October, 1995). The
two U. S. financial institutions are Orange County ($1.5 billion on structured note
derivatives December, 1994), and LTCM ($3.5 billion on emerging countries
derivatives September, 1 998).
Recent evidence of derivative debacles are reported in Miller & Ross (1997), Jorion
(1997), Smith (1997), Jayarayman& Shrihande (1997) and Ko & Shen (2000). Miller,
Rossand Jorion both cover the case of the OCIP (Orange County Investment Pool),Smith argues the case of P & G (Procter & Gamble), Jayarayman and Shrihande
survey the financial distress and subsequent financial restructunng at
To illustrate market volatility affected by derivatives, in the case of LTCM, we use as an example, the stomach-chumlngride the Dow Jones Industrial Average took from
9,338 down to 7,539, then back up to 9,734, between July and November 1998.
Investors and corporations alike have suffered tosses due to derivatives. Hence, there
have been calls f♭r disclosure on derivatives trading. To comnicate these risks
more effectively, Companies should report the market value of their positions on a
regular basis. This would provide feedback both to investors and to managers,and it
would eliminate the rationale of a一一nm on a bank."
Miller (1995) suspects the derivatives regulation come from the public's
misunderstanding about the seriousness of the risks involved. Unlike ea血quakes that
are exogenous calamities, crashes in financial markets are policy disasters and any
ove汀eaCtlng tO its previous policy makes f♭r e汀OrS in the other direction.
Miller (1995) states that the real problems at Metallgesellschaft AG, Orange County and P & G could be traced to top management-s failure to ask their technicians the
right questions before the programs were set under way. Top managers performthis
routinelywith most other big-money comitments, but derivatives are Just too new
and unfamiliarto set management-s standard control renexes into motion, onemight
imaglne. Thus, stngent disclosure requlrementS for U.S. dealers make it harderand riskier for them to do business.
On the other hand, after the issue of the Statement of Financial Accounting Standards
(SFAS) No･ 133, Accounting for Derivative Instruments and Hedging Activities
(FASB, 1998), Critics argue that the restrictive nature of theserules will increase
eamlngS VOlatility and make it more difficult f♭r managers to report smooth eamlngS
(e.g., Osterland, 2000). Because managers can use derivatives to reduce the
volatilities of eamings and cash flows, Barton (2001) examines the tradeoffmanagers
smoothing earmngs. The results also suggest that the magnitude of notional amounts
and discretionary accruals are endogenousand most likely the result of a JOlnt
decision to managerisks and eamlngS. Besides the above discussion, Jones and et al.
(2000) discuss how accounting f♭r derivatives affects other comprehensive income
(OCI) and shows that a major complaint, especiallyfrom capital-sensitive companies,
is the volatility ln equlty Created by the new requirements. Trying to managethese
fluctuations may discourage prudentrisk-management activities.
We next examine the case of JapanーS, Showa Shell Sekiyu, Smitomo, as well亡aS
Daiwa bank, Nippon Steel Chemical Co., and Yakult Honsha Co., for a detailed study
since they offTer an opportunlty tOanalyze the impact of the regulations on derivatives
and corporate govemance mechanism. All of these compamies sustained a fatal loss on
derivatives transactions, which were thought to be steep but survivable. Other companies outside Japan, however, should they sustain comparable losses, may not
fare so well. For this reason alone, it may be useful to take a closer look at what could only be termed afiasco.
Prowse ( 1992) examined the structure of corporate ownership in a sample of Japanese
firms in the mid 1980s and sugge.Sted that ownership concentration did not differ
signはcantly between keiretsu and independent firmS. Prowse (1992) Concludes that
ownership concentrationand profitability in both keiretsu and independent firms are
unrelated. In particular, higher ownership concentration is not related to higher
profitability. Morck, Nakamura, and Shivdasani (2000)氏nd that the relation between
managerial ownership andfirmvalues is monotonically positive in Japan. This is
consistentwith controlrights resting generally withcreditors and withincreased
ownership servlng tO align managerialand shareholder interests.
The rest of the paper proceeds as fわllows: Section II traces the financial reports of the
disclose information on these derivatives tosses. Section III examines their financial
and govemlng Structure. We also test the relation between shareholders and茄rmvalue.
Section IV concludes the findings of the paper.
II. Financial Reporting for Distresses
This paper traces the onglnS Of the crisis and subsequentfinancial distress at茄ve
Japanese companies by exploring each organizations'financial performance over a
ten-year period. We divide the preceding period from the fbllowlng Period for a more
precise丘nancial performance profile of these companies.
A. Financial Perfbrmance and Accounting Convention
The earnlngS position of these companies had been severely weakened fbllowlng their
financial crisis. For example, Daiwa Bank reflected a three fold loss over the years
1998 through 2001･ The same was true for Nippon Steel Chemical which reported
four periods of net losses during 1995-1999. A comparison of these companies'pretax
profit trend during an observationalperiod, indicates that the average profitability during a preceding period, 1･34%, is marginally better than that of the followlng
period, ll.48%. The losses on derivatives may be amibutable to structural weaknesses,
disproportionate costs, unsatisfactory asset management, and an inefficient groupstructure.Asa result, some companies were not prepared for changesinmarket
conditions: shrinking markets and overcapaclty.
While 5 yen per share dividends at Nippon Steel Chemical were paidin1990 and
1992and 6 yen per share in 1991, no dividend has been paid since fiscal 1993. Such were the instances at Daiwa bank. Seven yen per share was paid befわre its crisis and
had a step-downindividend to l･5 yen in 2001. Dividends are decreasing for the aforementioned companies, Sumitomo, Yakult, and Showa Shell who areinvariably,
It is, moreover, an incomparable amount of cash flow fbrthese companies. The information of cash flow is disclosed as afootnote in the financial statement. Three of the company's reports consolidated statements of cash now after鮎ca1 2000 rendering
us unable to compare their long-termliquidity crisis on a consistency basis. The Japan
auditing convention excluded the statement of cashflOws resultsand could not sort
out the effect of derivatives position taken by these distressed firmsl ･
For these companies, working with Japanese auditors applying Japan's accountlng standards, special galnS and special losses, which between the sections of current
pretax income and extraordinary Items On the income statement,are to be recognized
at the end of the fiscal year. Such items realized gain (loss) on disposal of marketable
securities or fixed assets, unrealized valuation on marketable securities, a冊liated bad
debt allowance, custodial pension payments, attomey-negotiated settlements,
contlngenCy, and so on are reported as special items･ Consequently, all of the losses on derivatives transactions are reported as part of the special items that nlSCal year･
Furthermore, in order to ml such holes, many companies disposed of dozens of
marketable securities or rlXed assets at the same accountlng Periodand thereafter. For
instance, Nippon Steel Che血cal reported special galnS and losses in the distress year
of 16･l billion and 16･9 billion, which accounted fわr 5.5 times and 6.77 times,
respectively, than one year previously･ So as did Show且 Shell Sekiyu when its special
galnS and losses compared 49 times and 32･8 times with that of血e previous year.
B. Disclosure of inforTnatiOn on risks
At some intemationally active financial institutions, the notional amount outstanding
of derivatives transactions exceeds the sum of on-balance-sheet assets, such as 1 Japancompaniesand their auditors are starting with consolidated balance sheets in fiscal1999 and
lendingand securities. According to the Bank of Japan ( 1997) Survey of Derivatives
Market Activity, the notional amount of derivatives transactions at major Japanese
financial institutions, reached a ratio of two to丘ve times･ By this study, the average
percentage of reported notional amount of derivatives transactions to total assets at
these companies varied舟om 12.80% to 38.21% as of the period of observation.
The Federation of BankersAssociations of Japanamended the uniformdisclosure
standards applied to financial institutions to include disclosure of derivatives (i.e.,
off-balance-sheet) activities starting in fiscal 1995. The new standards recommended
disclosure of quantitative infわrmation such as the notional amount/contract valueand
the creditrisk equivalent (for example, the current exposure) of derivatives
transactions･ In July 1996, such as the..Regulation concemlng Teminology, Forms
and Method of Preparation of Financial Statements, etc.," were revised to enhance derivatives disclosure by firms, including non丘nancial firmS･" In response to therequlrementS and recommendations, a larger number of major Japanese financial
institutions disclosed infわrmation on their derivatives transactions and risk
management in their fiscal 1995 annual reports (Bank of Japan, 1997).
An overview of the disclosure by these financially distressed companies on derivatives andriSk management in annual reports dated 1995 and beyond revealed
that more information was disclosed than in previous reports･ In addition, a slgnificant
distinction was made in that progress in marketrisk was disclosed in their fiscal 1995 annual reports･ The kind ofderivatives disclosed can be classified into five categories:
interest rate, currency, equlty, bond, and commodity･ Most of these companies disclosed information of policy, notional amount, fair value andunrealized (deferred)
galnS Or losses about exchanged derivatives transactions at the end of eachfiscal year.
Only Daiwa Bank disclosed its expected degree of marketrisk (e.g., VaR), however.
None of them disclosed in their fiscal 1995 and beyondannual reports information on
estimated risk management perfbmance uslng a ''backtestlng一一method. Nor the
method of "stress testlng." With regard to the infわrmation of creditrisk, Daiwa Bank
disclosed its creditrisk equlValent at the end-of-year from 1999 based on BIS capital
accord with cu汀ent exposure methods.
ⅠⅠⅠ･ Sample and Measurement or Derivatives and Ownership
A.Sample
Our data on ownership and derivatives are from each firm's financial reports, which
provide this infわrmation at the end of each fiscal year. Other data are from the
documents of judicial precedent and the newspaper (e.g. The Nihon Keizai Shimbun). This paper consists of five companies for ten-yearannual reports, which cohsists of
four years before (e･g･ previous period), one current yearand five years ex post (e.g.
following period)･ It excludes three copies of annual reports since thatwill be reported
in thisand the next fiscal year･ Thus, it includes totally forty-seven copies Of annual financial reports･ Table 1 summarizes the sample's composition.
The figures in Table 1 suggest that the types of derivatives used are not dense issues
wi血another types or derivatives, such as swaptlOn Or exotic optlOn, aS a level of
comparison. However, all of the authorizations that revolved around derivatives
transactions are concentrated in one staff. This might be a common denominator that
most companies treat derivatives transactions as a separate and distinct transaction.
Jorion (1995) concludes that the lessonin1994, for OCIP and others, was that
exposure to marketrisk always is of consequence･ It will be ignored only at an investor's peril･ The job rotation is absent kom organization, too. This also becomes
activities such as related-party transactions, contingency, or subsequent events (Ko
and S九en, 2000).
Table 1 Sample Selection and Composition
Fin 薄襾W7G' DeriVatiVelosses 膝& F匁r 也7G'VﾖV蹠2 Ⅵ∋ar 疲 踐fﾆ Fﾆ誡 6 ﾗ 譁W6 B E4R
Daiwabank 豸匁r $1.45billion($1.1billion 紐 1995 ッ
and 末貳 76W2ﾂC3C ﾖ免ﾆ柳 Treasury
Ⅰnsurance V ﾇG 襭C ﾖ免ﾆ柳 匁ﾆVv ﾆfVW2 bond
NipponSteel ChemicalCo. Vﾖ ﾂ 匁GW7G' $135million Y/6V f&蘿 &G2 1993 澱
ShowaShell SekiyuK.K. WG& ﾆWVﾒ 匁GW7G' $1.58billion Y/6V h.ﾗ'v &G2 1993
Sumitomo ﾖﾖW&6R $2.1billion($1.8billion W" 1996 ﾃ##B Corporation 末襾W7G' inlosses,$125million penaltyand$168million insettlement) 鉾WGW&W2
YakultHonsha Co. 防.ﾖ B 匁GW7G' 苧105.7billion F蹤W&W7G& FR 7v 襭 7F 6ｶ匁FW 5v 1998 涛B
Source:AmualfinancialreportsandTheNihonKeizaiShimbun.Ⅰnc.
B･ Measuring Derivatives Use
Mano (1996) Suggests that the best measure of a company･s hedging is the ratio of
the derivative position to the amount of risk exposure thefirmis trying to hedge. Unfortunately, most companies do not disclose enough information to compute thisratio･ We measure derivative use (Der/TA) as the disclosed notionalam.unt.i interest
rate,foreign currency, and other derivadves, scaled by total assets･ Table 2 reports
sample companies'descnptlVe Statistics･ including their derivative position.
Derivatives data come from notes of financial statements. The amounts of used
derivatives with meanand median notional amounts of 819 billion yen and 58 billion
loss &om the exchanged market only･ Theamounts of netted deferred gainswith mean
and median notional amounts of2･7 billion yen and 24 million yen.
Table2DescriptiveStatisticsfbrSample茄rm-Years(millionYen)
Variable 披 Mean F 襷 &B FWf F柳 First Quartile 磐VF Third Quartile
Totalassets 鼎r 4,546,873 澱ﾃc rﾃC 288,057 都 ﾃsビ 3753250 Sales 鼎r 3,003,260 釘ﾃ づbC" 260,412 涛3bﾃcィ ナウ 1530393 PⅠ℃taxⅠncome 鼎r ll,042 鉄2ﾃ3sb 2,624 SSC ク〉 37823 NetⅠncome 鼎r -6,534 鼎"ﾃゴR -2,315 白 sSS" I 13292 DeriVatiVes-Notional amount 鼎r 819,339 ﾃcS"ﾃs R 0 湯 Sづ3sb I 716,487 Ⅰnterestrate " 718,598 ﾃC#2ﾃ3#B 205 C 2 709784 Foreignexchange b 429,750 都Cづ33 6,614 鋳 都S ナ 291031 Other R 173,612 cづS3r 20,632 白 C ) 189932 Deferredgain(loss) r 2,660 rﾃ#s" -478 鋳 #B ウ ･2,441
The characteristics of off-balance-sheet data have leftderivatives transactionswith
less transparency in financial statements･ To determine whether derivatives capture
basic attributes of financial management, we correlated Der/TA, Int侶quity,
Cur侶quity, and Other/Equity with other proxies for financial ratios constructed鮎m
publicly available data: logarithm of Sales, Debts, and Equity lnmillions of yen.
Table 3 displays a strong positive correlation between Int/Equityand debt proxy, Suggestlng that companies use interest rate derivatives to hedge therisk of flnanClng activides･ There is also presented a positive correlation between OtherrEquity and
debt proxy, as well as equlty proxy.
Table 3 also shows the results of correlation coeFICient between ownership and other
proxies･ For血ese co叩anies, the percentage of outstanding shares held by the block
shareholders ranges from a minimum of 18･41% to a maximum of 79.67%,with a
meanof 45･48%･ Table 3 provides that block shareholders･ ownership is strongly negative when correlatedwith two measures of derivadve use: Int侶quity and
rest pnmarilywith block shareholdersinJapan, the relation between managerial
ownership and firm value should diffTerfrom that observed in another countries. This
finding supports evidence in Morck, Nakamura, and Shivdasani (2000). They show that equlty OWnerShip by corporate block holders is positively related tofirmvalue, which is defined as the sum of replacement cost and NPV, in Japan･
Table 3 Results of Correlation Coefficient among Measures of Derivatives
l｡gySaaj≡!e _謂芋 幽過重QgLA主軸迦壁地軸幽
NI/Sales 0.083 0. 14 1 Der/TA 0.022 0. 1 37 -0.063 Intn:quity -0.368* 0.016 -0.124 0.160 Cu〟Equity 0.078 0.083 0.068 0.938** 0.173 0the〟Equity l0.316* 0.216 -0.025 0.017 0.011 _0.088 log-Debt -0･435** 0･576** 10･033 0.080 0.470** 0.130 0.340* log-Equity -0･760** 0･604** 0･079 0.140 0.362* 0.128 0.305*+ * and ∼ denote sigmiflCanCe at the O･05and O･01 levels, respectively, based on two-tailed test. + Amounts ofSales･ Debts, and Equity inmillions of yens are scaled by logarithm.
+ Der/TA is the notional amount of interest rate･ foreign currency･ and other derivatives, scaled by total assets.
◆ Int侶quity･ Curmquity, and Other侶quityare the notionalamount of interest rate, forelgn Currency,
and other derivatives･ respectively, scaled by equty･
◆ owner is the percentage of outstanding common shares owned by block shareholders.
C･ Meastlring the Relation between Derivatives and OⅥlerShip
Table 4 shows the means for the preceding period of血ancial distress and for the
period after thefinancial distress･ The significance of the differences in the mean for
these two groups is assessed using the t test method. First, table 4 shows that both net
income and accountlng PrOnlt rate at following Periodare slgnificantly smaller than
that of preceding period･ So as does the result ofeamings per share (EPS). That is, the
pro触bility lS Vi血ally changed in the years su汀Ounding the imense occasion of
derivatives losses･ Second, in terms of derivatives use, the notionalamOunts before
rlnanCial distress are slgmificantly smaller than that of the preceding period.Whereas
the notional amounts of derivatives scaled by total assets, in table 4, show no
significant difference between these two periods･ Being pretty much of Japanese
financial institutions disclosed infわrmation on their derivatives transactions andrisk
management in their annual reports since fiscal 1995, the comparison of derivatives
use in terms of absolute notional amounts indicates slgnificant results.
Aswe described above, dividends are not significantly different between the two
periods since many companies maintain a stable dividend policy･ Table 4 also shows
no significant change in sales and equityduring these two periods. Since salesand
equity do not have slgnificant changes as eamlngS, We do not find evidence that the growth of sales may be toughened by the tosses on derivatives and lowered by its
market competition fわr years.
Table 4 Results oft-Test for the means
Variables Vf'&TF G&W72 A氏erDistress 唯ﾗ7F Fﾅ7Fﾄ52 P-Value
NetⅠncome 免ﾂﾃC#R -5,084 sSb 0.0141** NⅠ/Sales 經"R -1.33% 繝塔2 0.0324** Debt-ratio 都B ３ 79.24% 蔦 縱 唐 0.2379 Owner 鼎B RR 46.96% 蔦 0.3515 Der/TA B rR 17.09% 蔦 0.3897 EPS R 3SR -2.8955 CCb 0.0191** Dividend 唐 6.477 33B 0.1123 log-Sales 澱 " 5.922 紊CC 0.3297 log-Equity 迭 B 5.283 C 0.4158 DeriVatiVes 鼎 ﾃ#sR 1,732,103 蔦 纉 3 0.0336** N 22
Based on the t-test, the p-value in the table tests the differences in the means between the preceding and the following distress financial measures.
Morck, Nakamura, and Shivdasani (2000) show that equity ownership by corporate
block holders is positively related tofirmvalue in Japan･ Since corporate block holders performan important monitonng role in precIPltating board-level changes
(Kaplanand Minton, 1994) as such, block holders facilitate significant asset restructuring in poorly performing flrmS (Kang and Shivdasani, 1 997).
Table 5 provides OLS estimates of a regression of the ownership concentration of the
firm on the measure of profitability, the equity Of the firm, and derivadves Variables
for three sample periods･ The dependent variable (owner) isthe percentage of outstanding shares held by the block shareholdersfor the observed period･ This paper includes several independent variables in the regression: rate of net income, EPS,
nodonal amounts of derivatives scaled by total assets, and firmvalue measured by
logarithm of equlty lnmillions of yen･ Table 5 shows a significant relationship
between ownership concentration and accountlng Profit rate and firm value for the
preceding as well as all periods, where in both cases the coefrlCients on accounting
prom rate and firmvalue are negative and significant･ However, there is no slgnificant relationship between ownership concentration and accounting Profit rate for the
followlng Period, where the coefficient is negative but inslgnificant･ In sum, there is
little evidence of any relationship between ownership concentrationand firmvalue2. This result may be consistent with one impression･ The c叩∝ate gOVemanCe
mechanisminJapanappears to rely more on direct monitoring of managers by
shareholders achieved through concentrated ownership structures. This reliance appears to renect some factors, including the greater latitude given afrlliatedfinancial
institudons to be active investors in f1rmS and a less active market for corporate
control in Japan.
2 Tus paper a-pted another flrmValue proxy such as the stock prices reponed at the armual repon,
but the regression results did not surpass the equity logarithm proxy･Table 5 Regression Results forthe Ownership Concentration forthe preceding
血ancial distress andthe followingfinancialdistress on Measures of accountlng PrO丘t
rate andfirmvalue of the Firm.
Independent Intercept NI/Sales EPS DerrTA log-Equity N Adjusted F-statistic
Wables R2
Previous period
coemcient 2.46 16.66 0.00 0.05 -0.37 20 0.982 262.95
t-statlStlCS 30.06 -16.15 7.24 3.11 124.51
p-Value 8.1E-15 6.8El11 2.9El06 7.2E-03 1.6E-13
Following Period coe爪cient 2.17 10.59 0.00 10.20 -0.32 22 0.485 5.94 t-statlStlCS 3.78 -0.48 0. 1 5 -0.55 -2.70 p-Value 0.0015 0.6388 0.8804 0.5872 0.0150 Allperiod coe爪cient 2.52 -1.50 0.00 0.05 -0.39 42 0.626 - 18.18 t-statlStlCS 10.22 11.91 1.19 0.73 _8.39
p一Vahe 2.5E-12 6.4E-02 2.4E-01 4.7E-01 4.4E-10
Top managers do routinelythe samewithmost other big-money comitments, but
derivativesare too new to set management standards control (Miller, 1995). The
corporate govemance structure at Japan-S鮎ancial crisis companies払iled in averhng
血ancialdistressfor organization because of the leamlng Curve faced by semior
management in understandingtherisk of derivatives, different accountlng conventions inthe USand Japan, and shortcomlngS in intemalControl. Intemal informadonand control systems were insufncientinuncoverlngthe eve-hanglng risk characteristics of the derivatives-based hedge strategy.
ⅠV Conclusion
This study has lmPlications fわr research on earnings, managementand reportlng
policy because it suggeststhat managers of血ancially distressed firms make
accountlngandrisk management decisions jointly･ Becauserisk managementand
ca血flow managementareinterrelated, researchthat overlooksthis relationrisks
drawingunsuitable infbrences about managers一触ancial reporting decisions.
investment companies in response to changing economic perfわrmance. The evidence
is supported by Prowse ( 1 992) who concludes that large shareholders of keiretsu rlrmS may have means to monitor and control management other than血rough their role as a
sharehol der.
It is a common criticism offinancial statements that they lack adequate disclosures
aboutrisks and uncertainties for derivatives transactions. Investors andanalysts really
need more regulation of financial derivatives･ However, strict guidelines always are
one step behind kequently evolving global capital markets. Good judgment cannot be
regulated. We hope these "high-nying plunges''become lessons to be studied, to be
leamedfrom, in a spirit of sympathetic understanding whose purpose is to prevent
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