Abstract
This chapter highlights the features of and issues in the disclosure of management earnings forecasts (MEFs) in Japan. In Japan, listed companies are mandated to publish MEFs, which can also be considered a function of self-discipline for the companies. Meanwhile, prior studies in the US and Japan have reported that earnings forecasts contain a variety of biases stemming from company characteristics and executive incentives. There is a risk for Japanese companies in using biased forecasts for self-discipline. For instance, since Japan does not mandate the election of outside directors, unlike the US or Europe, companies do not have functioning external monitoring. Thus, in this chapter, we examined the relationship between optimism in earnings forecasts and the presence of outside directors. Boards composed only of internal directors may prepare more optimistic forecasts, which may be mitigated by electing outside directors who bring a neutral, external perspective. The results of our inquiry elucidated that optimism in some portions of earnings forecasts may be reduced in companies with outside directors.
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Notes
- 1.
However, in both countries, corporate earnings forecasts are published in an array of forms, namely by analysts at securities firms and ratings agencies, analysts affiliated with newspapers and publishers, and more recently, neutral independent analysts not affiliated with particular financial institutions.
- 2.
The next most common closing is December, accounting for about 8Â % of the total.
- 3.
The English version of the timely disclosure site is https://www.release.tdnet.info/index_e.html.
- 4.
Another likely reason for disclosure is to avoid penalties from the capital markets.
- 5.
Chen et al. (2011) claim that analysts cannot produce information at the same level as companies do, even if they have other sources of information.
- 6.
Japanese Corporate Law permits two organizational formats: company with audit and supervisory board members and company with committees. A company with committees has a US-style governance structure and the election of outside directors is obligatory. However, there are extremely few companies in Japan choosing this organizational format.
- 7.
As long as there are one or more independent audit and supervisory board members, there is no need for independent directors to be elected.
- 8.
Karamanou and Vafeas (2005) also report that a higher proportion of outside directors increases the frequency of MEFs.
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Tsumuraya, S. (2014). Effects of Biased Earnings Forecasts: Comparative Study of Earnings Forecasts Disclosures by US and Japanese Firms. In: Ito, K., Nakano, M. (eds) International Perspectives on Accounting and Corporate Behavior. Advances in Japanese Business and Economics, vol 6. Springer, Tokyo. https://doi.org/10.1007/978-4-431-54792-1_14
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