This study analyzes the information contents of income smoothing behavior, especially the role of income smoothing behavior as a signal of future performance. What do smoothed earnings tell us about the future? To answer this research question, this paper focuses on earnings persistence and dividend policy based on two prior survey papers.These two issues (earnings persistence and dividend policy) are the foci of this study,based on Japanese managers' responses to questions regarding their motivation for income smoothing. This paper provides two new pieces of evidence. First, income smoothing in the previous period relates positively to future earnings persistence. Second, firms that engage in more smoothing tend to pay more stable dividends in the future, even when we control for past dividend policy, fundamental factors, and corporate governance factors.These results indicate that income smoothing behavior is likely to reflect future stability of earnings performance. Income smoothing acts as a vehicle through which managers can reveal private information about future earnings persistence and future dividend policy. The empirical evidence supports the information view rather than a garbling view of income smoothing, and sheds light on the bright side of smoothed earnings rather than its darkside.

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Following the collapse of the Japanese financial bubble during the 1990s, Japanese corporations came to be saddled with increasingly large underfunded pension obligations.The gap between the level of retirement benefit promised and the market performance of retirement funds widened alarmingly, adding to the sense of corporate financial malaise during the “lost decade" that followed the market collapse. Partly in response, the passage of new corporate pension legislations in 2001 introduced the so-called defined-contribution pension plans whereby corporations were allowed to establish retirement plans on behalf of their employees on a voluntary basis whereby the terms of the retirement benefit were no longer defined in advance as in the traditional plans, but instead were conditioned on the actual performance of managed retirement funds. Only the periodic premium contributions to the plan during the employee's active working life were now defined. This paper investigates the empirical determinants of the Japanese corporate decision to newly adopt the defined-contribution (DC) pension plans. Among the key findings of the paper are that the likelihood of adopting a new DC plan increases with an increase in the size of the firm, and that it decreases with an increase in the extent of underfunding of the firm's existing defined-benefit (DB) pension plan, in sharp contrast to the American corporate incidence of DC pension.

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Banks play a critical role in corporate governance in many economies around the world. This paper empirically compares the activities of security analysts (i.e., analyst coverage, forecast accuracy and forecast agreement) between firms with and without close working relationships with their banks in order to gain insights into how bank-firm relationships affect the information environments for capital market investors. Close bank-firm relationships signal the banks' positive evaluation of the firms because the banks screen the firms before entering or extending the relationships. Further, during the relationships, the banks monitor these firms. Thus, capital market investors are less motivated to scrutinize the firms, thereby demand less information. Investigating Japanese firms, we document that security analysts' forecasts are less accurate and less agreed (i.e., more dispersed) for the firms with long-established relationships with banks. Likewise, analyst coverage, forecast accuracy and forecast agreement are all lower for the firms with a larger amount of loans (i.e., private debt). The associations between bank-firm relationships and security analyst activities hold after controlling for the potential correlated variables (i.e., capital market financing, performance volatility, financial distress, cross-holding).

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This study analyzes the relationship between management ownership and its risk-shiftingincentive. We first present a simple model showing that the risk-shifting incentive of management of financially distressed firms increases as the management ownership of the firm increases. Empirically, we test the hypothesis that under the former Japanese Corporate Reorganization Law, firms with higher management ownership are more likely to use legal rather than private reorganization. Since the reorganization process under the law virtually eliminates the possibility of risk-shifting investment, creditors are more likely to prefer the legal process to private process, when management ownership is higher. Empirical results are consistent with the hypothesis.

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This paper evaluates the informativeness of analysts' ratings and earnings forecast information contained in analyst reports beyond what is publicly provided by management earnings forecasts. Using only analyst reports that have been released practically simultaneously with management forecasts, I find that both analysts' ratings and earnings forecasts have incremental information content conditional on management forecasts. Further analysis also reveals that analysts' earnings forecasts are significantly more accurate than concurrently-announced management earnings forecasts. Overall, the findings in this paper present strong evidence that analysts offer informational value to the market beyond information that is provided by company management.

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We adopt the accounting ecology framework of Gernon and Wallace (1995) to investigate the unique Japanese process of accounting reforms and convergence. The uniqueness of the Japanese accounting framework is primarily the result of the integration of the Japanese traditional accounting system and its surrounding infrastructures with International Financial Reporting Standards (IFRS), the Anglo-American model, and the liberal market economies (LMEs). The objective of this study is to demonstrate that accounting as the language of business is deeply embedded in the historical, legal, business and economic environments of each country and that these contextual factors cannot be ignored in the process of significant accounting reforms, including accounting convergence. The paper provides evidence that even in the process of global accounting convergence countries are not achieving defacto convergence because optimal mechanisms of the accounting system and its surrounding infrastructures are contextual and embedded in the accounting ecology of each country.

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The purpose of this study is to investigate the effects of a change in the accounting model on accounting information for decision making. Especially, this study shows that net income (earnings) does not play an important role in providing useful information for decision making if the accounting model changes from flow-based accounting to stock-based accounting. If the IASB and the FASB adopt stock-based accounting and measure assets and liabilities at fair value, earnings persistence and predictive ability will decrease, and the usefulness of income information will be impaired due to the increasing transitory earnings and the effects of earnings volatility. Stock-based accounting that emphasizes the balance sheet will impair the valuation role of financial reporting because the combined usefulness of accounting information of the book value of net assets and earnings does not improve; the usefulness of stock information (the balance sheet) for decision making does not necessarily improve, and the usefulness of flow information (net income) decreases. This finding indicates that the balance sheet approach does not necessarily improve the usefulness of accounting information.

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