The actual state of financial statements and verification of corporate valuation in dairy farming corporations : An empirical analysis of financial statement adjustments based on the “Guidelines for Agricultural Accounting”

Abstract

This study clarifies the actual state of financial statements in dairy farming corporations and quantitatively verifies the impact of financial statement adjustments, based on the “Guidelines for Agricultural Accounting,” on corporate valuation during business succession. The research utilized expert interviews with agricultural tax accountants and M&A advisors, a questionnaire survey of large-scale dairy corporations, and a case study of a large-scale dairy farm using the “Adjusted Net Asset plus Goodwill” method. The investigations revealed significant inconsistencies in financial reporting, such as the absence of manufacturing cost reports and varied accounting treatments for subsidies, with only a portion of surveyed corporations utilizing the “Guidelines for Agricultural Accounting”. In succession scenarios, respondents prioritized debt levels, transfer price, and the potential for land-based expansion. The case study demonstrated that adjusting subsidies from non-operating income to operating income resulted in a significant increase in the valuation, highlighting how accounting choices regarding subsidies and biological assets significantly alter equity value. Consequently, standardizing financial statements is essential for transparent business succession in the dairy industry, as adjustments reflecting industry-specific structural characteristics─such as land use, biological assets, and subsidy dependencies─are critical for resolving information asymmetry and ensuring fair valuations.