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The Internationalization and Voluntary Adoption of International Accounting Standards by Japanese MNEs

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This study investigates the relationship between the degree of a company’s internationalization and the voluntary adoption of International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Practices (GAAP) based on an analysis of Japanese multinational enterprises (MNEs). Our research is based on a unique setting, namely, the co-existence of voluntary IFRS and US GAAP, which began in Japanese corporations after March 2010. We find as follows. First, voluntary IFRS and US GAAP adoption is higher in Japanese MNEs with a higher internationalization degree. Second, greater foreign shareholding of Japanese MNEs would result in voluntary US GAAP adoption rather than that of IFRS. This result implies that foreign shareholders prefer US GAAP adoption over IFRS adoption or Japanese GAAP. Under a semi-globalization perspective, Japanese MNEs tend to have a US region-specific approach. This finding is interpreted as follows: foreign shareholders with shareholder-oriented logics stress the compatibility of financial reporting of MNEs with a US region-specific approach. Our study also provides new insight into international accounting standards of MNEs under stakeholder-oriented corporate governance. Corporate governance deviation, such as US GAAP adoption, is caused by greater presence of foreign shareholders with shareholder-oriented logics.

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  1. As in the un-tabulated results, about 1/3 of institutional shareholders are from the United States. This may be one reason that foreign institutional shareholders favor adopting US GAAP rather than IFRS.

  2. Industries without any cases of IFRS adoption are other products; warehousing and harbor transportation; construction; fishery, agriculture, and forestry; marine transportation; air transportation; pulp and paper; textiles and apparels; mining; and electric power and gas. Industries without any cases of US GAAP adoption are glass and ceramics products; rubber products; services; real estate; pharmaceutical; retail trade; oil and coal products; precision instruments; metal products; iron and steel; land transportation; and non-ferrous metals.

  3. Among our sample firms, 294 firms were listed on major EU stock exchanges (such as the London Stock Exchange and Frankfurt Stock Exchange). Among firms listed on EU stock exchanges, only 14 adopted IFRS.

  4. According to an anonymous reviewer’s comment, our results are robustly confirmed even when we do not eliminate industries with no IFRS adoption.

  5. According to Hong et al. (2019), the Toyo Keizai data are the most reliable data in Japanese MNE research. We calculate one of the three measures: international diversification in previous studies, using of Toyo Keizai data.

  6. According to an anonymous reviewer, we discuss about the connection of case studies and our empirical results in this section.

  7. According to anonymous reviewer’s comment, we investigate the indirect control of foreign shareholders. We also find that 27 US GAAP adopted MNEs are indirectly owned by US shareholders. We cannot find a name of US institutional shareholders in Toyota’s top 10 shareholders list.

  8. Our un-tabulated results imply that IFRS adoption tend to be progresses in MNEs with higher ratio of European subsidiaries.

  9. Our un-tabulated results imply that US GAAP adoption tend to be progressed in MNEs with higher ratio of US subsidiaries. This evidence also supports the stakeholder-oriented regimes that the voluntary adoption of US GAAP is due to align with the interests of stakeholders in expanded region.

  10. About 350 Japanese corporations listed on the ADR section of the US stock exchanges.

  11. In Japanese corporations, the appointment of foreign board members or foreign institutional shareholders’ representative board members remain low level. According to the survey, only 12.8% of proposals (:117 proposals) which aim to appoint new members by institutional shareholders are approved (Ueda, 2014). On the other hand, more than 88% of same type of proposals (75,298 proposals) by TMTs are approved (Ueda, 2014). Therefore, it is difficult to foreign institutional shareholders/stakeholders appoint representatives to the board in Japanese corporations.


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The previous version of this research was presented at Australian and New Zealand Academy of management (ANZAM) 2019 annual conference. We appreciate for helpful comments from Xudong Ji, William Judge, Chikako Ozu, Yoshiko Shirata, and participants at the ANZAM 2019 conference. This research was financially supported by the Japan Ministry of Education, Culture, Sports, Science and Technology, Grants-in-Aid for Young Scientists (A: 17H04784), and Grant-in-Aid for Early-Career Scientists (19K13847).

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Correspondence to Hideaki Sakawa.

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Appendix A: Definitions and Measurements of the Variables

Appendix A: Definitions and Measurements of the Variables



Dependent variable


Dummy variable that equals one if the firm adopts IFRS, and otherwise zero


Dummy variable that equals one if the firm adopts US GAAP, and otherwise zero

Independent variable


Total number of overseas subsidiaries of a firm


Total number of countries in which the firm has overseas subsidiaries


Average of the ratio of SUBSIDIARIES to the maximum value of SUBSIDIARIES and the ratio of COUNTRY to the maximum value of COUNTRY


Ratio of ownership of financial institutions


Ratio of ownership of foreign investors


Ratio of ownership of inside board members


Natural log of total assets


Return on total assets


Ratio of cash assets to total assets


Ratio of total debt to equity


Loans divided by total assets


Number of years that the firm has been listed on the stock market


Dummy variable that equals one if the firm has a net loss, and otherwise zero


Absolute value of operating cash flow to lagged total assets


Number of geographic segments in which the firm operates


Current year’s equity divided by prior year’s equity


Dummy variable that equals one if the firm is audited by a Big Four audit firm (i.e., EY, Deloitte, KPMG, or PwC), and otherwise zero


Dummy variable that equals one if time period is pre 2013


Industry dummy variable that equals one if the firm is represented in the specific Tokyo Stock Exchange New Industry Code category, and otherwise zero

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Sakawa, H., Watanabel, N. & Gu, J. The Internationalization and Voluntary Adoption of International Accounting Standards by Japanese MNEs. Manag Int Rev 61, 713–744 (2021).

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