Main banks’ influence on financial reporting quality in Japan

Kazuhiko Kobori, Robert Hutchinson, Ping Chang Lee, Yao Chuan Tsai, Tsing Zai C. Wu

Research output: Contribution to journalArticlepeer-review


This study investigated main banks’ influence on the quality of accounting firms’ audits and corporate firms’ earnings, focusing on companies on Japan’s Nikkei 500 index. We posed three questions in this research study about main banks’ influence on corporate clients’ earnings management. First, does a weakened main bank relationship influence corporate clients’ financial reporting quality? Second, does Japan’s firewall deregulation influence firms’ earnings quality? Finally, does the relationship between accounting firms and main banks affect client firms’ earnings quality? Our main findings were that main banks are not related to client firms’ earnings management; however, main banks mitigate client firms’ earnings management after firewall deregulation. On the other hand, firewall deregulation does motivate firms to manipulate their earnings management. Finally, using Pong and Kita’s (2006) study as a framework, we found that main banks and client firms using the same accounting firms had no influence on earnings management. Based on these evidences presented, our findings suggest that the quality of corporate clients’ financial reporting changes before and after firewall deregulation.

Original languageEnglish
Pages (from-to)2166-2178
Number of pages13
JournalApplied Economics
Issue number22
Publication statusPublished - 2017 May 9

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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