Financial Control through Japan ’ s Main Bank System and the Japanese Accounting System - The Past and the Future - Ellie

This paper aims to 1) compare financial controls through the main bank system to those of capital markets, 2) analyze the relationship between financial controls through the main bank system and the traditional Japanese accounting practices, and 3) analyze appropriate changes for financial controls and related accounting practices. This paper defines a main bank as an investor, which controls the management of a company by possessing the residual right of control. This paper shows that a main bank attaches the most importance to refundable earnings, as a creditor, and firm value, as a stockholder. This paper argues that it is important to strengthen the power of stockholders in the financial control system in present day Japan where financial controls through the main bank system no longer functions effectively. For this purpose, the most desired reform in the accounting system is the disclosure of future cash flows and the attribution of accurate stockholder equity amounts. It is also desired that Japanese management should make more of an effort to show an accurate and fair reflection of performance and financial position to stockholders in the market. This change may lead to increased efficiency of management, and at the same time, restore the good name of Japanese enterprises that fell in international public's estimation because of corruption and window-dressing.