| Research Abstract |
Our subject to study is Empirical Research on Accounting to Provide Implications for Future Accounting Institution. First, we pointed out specifically issues of conceptual framework of accounting, individual accounting standards, Japanese Corporate Law related to business accounting, conformity rule of tax with accounting, and quality of auditing in 2005.
Discussing a way out of the issues, we performed twelve empirical researches from 2006 through 2007 to provide implications for future accounting institution, i.e.,(1) relevance and reliability of financial accounting information,(2) relative and incremental explanatory power of dirty surplus for debt interest rate,(3) value relevance of the multi-step income statement,(4) relationship between flexibility of the accounting standard by retirement benefit plans and management accounting choice,(5) value relevance of the accounting loss information,(6) value relevance of the estimated liabilities required by the industry law,(7) relations
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hip between audit quality and internal control,(8)information content of net income and comprehensive income,(9) value relevance of deferred tax assets,(10) relationship between retained earnings ratio and debt contract,(11) accounting for long-term construction contract and its information content,(12) value relevance of earnings including gains from lapse of warrants. We provided some ideas to improve future accounting institution based on the results of the empirical researches.
We collected these studies and published two brochures. One is written in Japanese and the other one is written in English. Both of them were distributed to members of Japanese Accounting Association. The Japanese edition consists of six parts, 21 chapters. The English edition consists of five papers, i.e., the above second, third, seventh, eighth papers, and the paper contributed by Professor Douglas J.Skinner, Chicago University. When we had a workshop on February 2006 cosponsored by Osaka University of Economics, Professor Skinner and Professor Hitoshi Takehara, Tsukuba University, presented a paper. I was a commentator of the paper presented by Professor Skinner. The presented paper is included in the English edition brochure.
The above second, third, seventh papers were accepted to present at the 29th Annual Congress of European Accounting Association on March, 2006. Professor Otomasa presented the second paper and Suda presented the the third paper. Professor Suzuki presented the seventh paper. The eighth paper was accepted to present at 7th Annual Congress of Asian Academic Accounting Association in Sydney and Suda presented it.
The summaries of the above second and third research are as following :
(1) Relative and Incremental Explanatory Power of Dirty Surplus for Debt Interest Rate
This study investigates the relationship between dirty surplus items on the balance sheet and the cost of debt for Japanese firms. The research focuses on three dirty surplus items, i.e., the unrealized gains and losses on the available-for-sale securities, and the foreign currency translation adjustment, and the land revaluation surplus. By using the Vuong(1989) test, the paper evaluates the relative explanatory power of equity ratio with and without dirty surplus items for interest rate spread of bonds issued. The paper presents that equity ratio excluding dirty surplus items is more strongly associated with the interest rate spread than that including dirty surplus items. The results suggest that the total amount of dirty surplus items have no explanatory power for interest rate of bonds issued. However, the paper finds that some items of dirty surplus have the relative and incremental explanatory power for bond interest rate.
(2) Value Relevance of the Multi-step Income Statement in Japan
The paper investigates the relationship between value relevance of the multi-step income statement and managerial oppotunistic behavior. In Japan, net income is disclosed by three steps, i.e., 1) operating profits from core operating activity, 2) ordinary income, measured by adding gains and losses from non-core operating and financing activities to operating profits, and 3) net income that is bottom line performance in the icome statement. While Japanese firms achieve income smoothing, loss avoidance and big bath, the managerial opportunistic behavior is simply identified by the observation of multi performance measures. The paper finds that the firms engaging in such earnings management have the different value relevance of earnings from other firms. In many cases, earnings management decreases the value relevance of earnings. Less
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