| Finance and Accounting/Auditing | 1981 - 1992 | ||
| Intragroup Financing | Borrowing from the main bank in the horizontal keiretsu: indirect financing ** | 30 to 40% | |
| Retained funds: internal financing * | 40 to 60% | ||
| Stocks * and bonds **: direct financing | 5 to 20% | The weight of the individual shareholders is small. => Low dividend ratio. | |
| * = equity capital | |||
| ** = debt capital | |||
| [Total assets = * + **] | |||
| Big six main banks | Sakura Bank | Mitui Keiretu | |
| Tokyo-Mitubishi Bank | Mitubishi Keiretu | ||
| Sumitomo Bank | Sumitomo Keiretu | ||
| Fuji Bank | Huyou Keiretu | ||
| Sanwa Bank | Sanwa Keiretu | ||
| Dai-Ichi Kangyou Bank (DKB) | Ikkan Keiretu | ||
| Primary functions | Lender | Intragroup loan ratio: Ratio of loans received from banks and insurance firms within the group to total loans received | |
| Stockholder | stable cross-shareholdings and Fukumi (="latent assets")-based mgmt | ||
| Interlocking shares ratio: Ratio of shares owned by other group firms to total shares issued | |||
| Credit monitor | |||
| Venture capitalist | |||
| Company doctor | |||
| [Their roles are gradually changing in the current Heisei recession period.] | |||
| Cross-shareholdings | Some portion of shares are owned by other group member firms to show strong ties and loyalties among member firms. | They serve to protect firms from being merged and acquired by non-member firms inside and ouside Jpn. | High interlocking shares ratio: massive intercorporate stockholding |
| Observed during the (long) postwar period: Book value of the shares held is far lower than the (current) market price | Fukumi profit ("latent profit") = market price - book value >> 0: Source of the strenghth of Jpn firms | ||
| Jpn Accounting Principle | Equity assets (and real estate assets as well) are kept on a company's balance sheet at book value. | By selling such shares the company can generate additional profit, esp. when its profit from the operations is not sufficient enough. | The profit on the profit and loss statement fails to show the true operational profit of the firm, which is in fact crucial for the shareholders. |
| [International Accounting Standard: Assets are to be kept at market price; profit should be generated by the business operations, not by selling financial assets.] | |||
| Fukumi (="latent assets")-based mgmt | Mgmt heavily dependent on the latent assets: Source of the strenghth of Jpn firms | The firm may use such assets as a collateral when borrowing from banks. | This motivates the firms to take a long-term view in their mgmt strategy, to maintain the lifetime employment system, to choose a risky project, etc. |
| By selling such shares the company can generate additional profit, esp. when its profit from the operations is not sufficient enough. | |||
| Recent fall of the sock price (since 1990) causes the sharp drop in the latent assets, and hence necessitates abandoning of the fukumi-dependent mgmt system. | Fukumi profit ("latent profit") dramatically shrank due to the recent (since 1990 and 1991) sharp fall in the stock and the land market price. | Fukumi profit: 1981-1991 [Nikkei Business 8/3&10/92, p.15] | |
| Auditing | Auditors examine the corporate financial statements, checking the validity of the corporate behavior. | Auditors should be capable of monitoring the management from the viewpoint of the shareholders' wealth maximization. | |
| Jpns style of auditing | 1. Auditors are considered subordinate to the board of directors. | They should be as powerful as the board of directors. | |
| 2. Firms spend far less time and funds for the auditors than the American firms. | |||
| 3. The auditors are often those transferred from the firm's "main banks" in its corporate group. | Such auditors (available and limited only within a corporate group) are no longer desirable. Auditiors outside the firm and/or the group should be hired. | ||
| Recent case of an accountant being arrested <<10/13/98>>: Mita Industries (Mita Kogyo), a (medium-sized) xerox copying machine maker | Mita Industries went bankrupt in August 1998, and the window dressing was detected in its financial reporting ("Hunsyoku kessan"). The window dressing detected turned out just a simple rewriting of financial-statement numberical figures! | Its auditors and accountant did know but ignore such a window dressing, and the auditors signed Mita's financial reports as complete and correct ones. | |
| There were three auditors: one full-time auditor was one of the Mitas' relatives, and two other part-time auditors were good friends of the founder of Mita Industries. => mock ("Nareai") auditing. | The accountant was a classmate of Mita's ex-President's. |