Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

Managers’ Discretionary Behavior in Segment Reporting: A Study Based on the Internal Data of Japanese Listed
Companies

Takayuki Nakano,
Faculty of Lifelong Learning and Career Studies, Hosei University
Japan Accounting Association
E-mail: tnakano@hosei.ac.jp
Abstract
This paper verifies managers’ discretionary behavior in segment reporting. Pseudo-segments were produced based on the internal data of companies and compared with their externally reported segments. As a result, it was found that before adopting the management approach (MA), the managers of Japanese companies tends to refrain from disclosing the resultsof non-competitive businesses that have a high present value or unprofitable businesses thathave a low present value. This finding is consistent with the proprietary cost (PC) hypothesis
and the agency cost (AC) hypothesis. Through the study of the situation after the adoption of
the MA, it was confirmed that the ratio reporting pseudo-segments increased significantly. However, not all businesses are reported equally, and the managers still tends to refrain from disclosing the results of business segments whose PC or AC is large. Little evidence was found forindicating the restraint on the above-mentioned discretionary behavior. After the introductionof MA, I rather found some evidence implying the augmentation of this tendency. By using theinternal and publicly disclosed data of Japanese listed companies, this study contributed by giving initial evidence of managers’ discretionary behavior in the segmentation before the adoptionof the MA and the effects of applying the MA on the behavior.
Keywords
Segment reporting, Discretionary Disclosure, Management Approach, Proprietary cost, Agency
cost, Individual data

(1) Introduction

companies in Japan, the following two points:

This paper empirically elucidates, based

the motivation and method of segmentationon the internal data of publicly listed

by managers, and the effect of adopting the34

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

management approach (MA) on managers’

the MA on managers’ behavior towards seg-

behavior towards the segmentation1.

mentation has not been examined either. As

In the United States, where segment re-segment reporting is essential for financial

porting was institutionalized ahead of any

statement users, this issue is worth verifying

other countries, the segmentation was firston an academic level.

virtually left to managers’ full discretion un-

Considering these issues, this study ex-

der the standard called an industry approach

amines whether or not the managers of Japa-(hereinafter referred to as the “IA”) (FASB,

nese companies aggregates internal segments1976). There was a conspicuous trend sug-in accordance with specific motivation and de-gesting that, under the IA, managers aggre-

fines external segments 2 for their own con-gated “segments for internal reporting pur-venience. However, internal segments areposes” (hereinafter referred to as “internal

confidential information, and therefore, it issegments”) and defined “segments for exter-

difficult to verify using only publicly disclosed

nal reporting purposes” (hereinafter referred

data. In this research, I have directly ob-

to as “external segments”) for their own con-served the type of business in which each com-venience. In the wake of criticism from the us-

pany has engaged and established pseudo-

ers of financial statements, the MA wassegments based on internal data, and thenadopted in the second half of the 1990s withcompared them with external segments. This

the aim of decreasing room for managers’ dis-study has made contributions by exhibiting

cretion (FASB, 1997). Following the United

the very first evidence regarding managers’

States, the MA was introduced to the Interna-

discretionary behavior towards segmentation

tional Financial Reporting Standards (IFRS)

before adoption of the MA, and the effect andin 2010 and the Japanese generally acceptedissues of the MA on their behavior, with theaccounting principles (J-GAAP) in 2011use of both internal and publicly available(IASB, 2006: ASBJ, 2008). Before the adop-

data of Japanese listed companies.

tion of the MA, J-GAAP had employed the IA

This research is composed of three parts.

similar to that used in the United States.

Firstly, I develop hypotheses for verification

However, regarding whether or not man-by overviewing the previous work on manag-

agers of Japanese companies actually defineders’ discretionary behavior towards segmen-

external segments for their convenience, suchtation. Secondly, I describe the research de-

anecdotes were told by practitioners but havesign and the verification results. Finally, I

not been verified in an academically reliablesummarize findings and mention limitations

methodology. The effect of the introduction ofand future issues to address.

1

In this paper, segment reporting is used as a synonym

2

In this paper, while segments for internal reportingof segment information disclosure. Furthermore, thepurposes refer to the segment used within a company forsegmentthethe purpose of internal management, segments for“information reported for industry segments” before

external reporting purposes mean the segment disclosed

adoption of the MA and the “segment information” afterin the notes in financial statements.

information

hereinrefersonly

tothe adoption.

35

Journal of Japanese Management Vo.3, No.2, May 2019(2) Previous Research and Hypotheses

ISSN 2189-9592

the company’s product market, and finally the
corporate value is impaired.
The research by Harris (1998) is the first

1. Prior Research

to have demonstrated managers’ discretionIn this section, I look back at prior studies

ary behavior regarding segmentation. Taking

related to this research. If segments were de-the aforementioned theoretical analysis into

fined as they were, high-quality informationaccount, she made an assumption that man-was disclosed, and then the costs exceededagers had the motivation of aggregating thebenefits3, managers should have the motiva-

business with a higher profit margin whosetion to lower information quality, that is, theproduct market was more monopolistic or lessdisclosure costs through various efforts suchcompetitive, and carried out examination us-

as aggregating internal segments, within

ing the following model with U.S. companies

their discretion approved by accountingthat provided segment reporting based on an

standards. What has been conventionallyIA (1987-1991):

pointed out as the aforementioned costs isℎ =proprietary costs (PC), which is the cost incurred due to leakage of confidential information to competitors through segment re-

+

+

4

+

porting, creating competitive disadvantages.
Hayes and Lundholm (1996) conducted(1)+

an analytical research, through which theyThe objective variable Matchij is a binary

have theoretically unraveled the PC gener-

variable4, which becomes 1 if business cate-ated due to segment reporting. Their researchgory j in which firm i engages is reported bywith a company running two businesses set as

segment or 0 if the category is not reported.

a model has, in an analytical manner, led to

The variables of interest are SpeedAdj, Con4j,

an economic consequence that, when there is

and IndHij (“the rate of adjustment of excess

an enormous gap in the profit margin be-

profits,” “4-company concentration ratio,” andtween two of the company’s businesses, seg-

“Herfindahl-Hirschman Index by businessment reporting conveys information that sup-category” for business category j ), which indi-

ports the competitive strategy of competitors,

cate that the greater these values are, the lessthat is, which of the two businesses has aintense the competition is in the relevant

larger future cash flow, competitors enter intobusiness category. As a result of logit estimation of Equation (1), the coefficients of all of
the variables of interest were significantly

The benefits expected through high-quality segment

contained for the business categories in which

reporting include effects on financing, such as acompanies engaged, a maximum of two SICs were given

reduction in the cost of capital.

to each segment.

3

4

In Compustat’s database at that time, while North

AmericanStandard

Industry

Codes

(SIC)

ℎ

was identified as 1 when theformer was included in the latter on the 3-digit basis,

were

and 0 when not included.

36

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

negative, suggesting that the managers did

managers do not withdraw from the stagnant

not report segments for less competitive busi-

business due to their moral hazard. As a re-nesses.

sult of verification with a model being based

The finding by Harris (1998) has beenon the study by Harris (1998), several pieces

further verified in ensuing studies by otherof robust evidence that supports the AC hy-

researchers, as a PC hypothesis that “manag-

pothesis (suggesting that businesses with aers hold the motivation to prevent the perfor-

lower excessive profit margin are concealed

mance of their companies’ less competitive

before the MA is adopted) and several pieces

businesses with greater excess profits fromof weak evidence that supports the PC hy-

being disclosed to other enterprises throughpothesis (suggesting that businesses with asegment reporting.” Harris (1998) calculated

higher excessive profit margin are concealed

the variable of the market concentration ratio

before the adoption)6 were obtained in the re-using only the data of listed companies, fromsearch.

which, however, glaring errors resulted; thus,

However, while being intended to iden-

the opinion that unlisted public companies

tify how external segments were aggregatedshould also be included is prevailing today5.

against internal segments, these empiricalIn the second half of the 1990s, the MA

studies observed internal segments only indi-

was adopted in the United States. Comparing

rectly. I consider Harris (1998) based on athe data before the adoption with post-adop-strong assumption that the businesses man-tion data, Berger and Hann (2007) analyzed

agers did not want to disclose to third parties

the characteristics of the newly disclosed seg-were contained in the commercial database7,

ments, in other words, the segments con-while Berger and Hann (2007) made a potent

cealed before the MA was introduced. The re-supposition that all the segments newly dis-search had an important contribution by tak-closed after the MA was adopted were con-ing up not only the PC hypothesis, but also

cealed by managers, therefore, their studies

the agency cost (AC) hypothesis for discussion.

possibly failed to properly identify internal

The AC hypothesis proposes that managers

segments.

hold the motivation to prevent stakeholders,

It is Bens et al. (2011) who overcame thissuch as shareholders, from recognizing theirpoint. Their study established pseudo-seg-

poorly performing businesses through seg-ments based on data by factory in the manu-

ment reporting, on the assumption that op-

facturing industry and compared them with

portunity costs are inflicted because theexternal segments, using individual data of a

As a result of an replication study for Harris (1998) by

the segments newly disclosed after MA adoption arecalculating the variable of the concentration ratio using

relatively less competitive and have a higher excessive

the data of a U.S. census survey that included both listed

profit margin.

and unlisted companies, Ali et al. (2009) reported that7

the coefficient of the variable did not become significant.

publication, the managers is unlikely to declare all5

6

Botosan and Stanford (2005) also obtained a weak

Because the commercial database is on the premise ofbusinesses as they are.

evidence consistent with the PC hypothesis arguing that37

Journal of Japanese Management Vo.3, No.2, May 2019

U.S. census survey. As a result of an analysis

ISSN 2189-9592

2. Hypotheseswith a model based on the research by Harris(1998), evidence that supports both the PC

In this section, I develop hypotheses. The

and AC hypotheses was acquired. Although

Accounting Standards Board of Japan (ASBJ)

the number of sample companies was only

pointed out that there was criticism before

1,625 firms-years in the period before the MA

adoption of the MA, which mentioned that

was adopted (1987, 1992, and 1997), the study

segmentation was insufficient and infor-

directly observed internal segments, contrib-

mation disclosure did not properly reflect di-uting considerably to shedding light on theversified management8. The Japanese indus-

managers’ discretionary behavior.

trial circle had strongly opposed institutional-

These are the previous studies pertinentization of segment reporting, citing as a major

to this research; however, their findings arereason that the PC accompanying segment re-limited. That is, the only fact revealed is that,

porting, such as leakage of confidential infor-

while being given ample room for discretion

mation, was enormous9. As the government

before adoption of the MA, managers aggre-

has traditionally regulated industries and thegated business with the considerable PC orpractice of cooperative transactions throughAC accompanying segment reporting into

affiliates has existed in Japan, the PC be-other segments and suppressed their busi-

comes relatively huge when highly profitableness results. No study has included in thebusinesses are revealed through segment re-matters for discussion whether or not manag-

porting. Meanwhile, the reality is that Japa-

ers’ discretionary behavior changed following

nese companies, compared to the U.S. and Eu-

the MA adoption.

ropean enterprises, have held less profitablebusinesses (Industrial Structure Council,
2017). This means that the AC, too, becomescomparatively considerable when businesses
with low profit margins are articulated
through segment reporting.

8ThelargerStandard for Disclosures about Segments of an

The Theme Advisory Council of the AccountingStandards Board of Japan (November 2001) pointed out

Enterprise and Related Information, thethat nearly 20% of large-sized leading companies inindicated that, regarding the conventional way ofJapan, at that time, seemingly, made financial reporting

disclosing segment information, some held negativein a single segment, or had not established industry

opinions that segmentation was not sufficiently andsegments on the ground that the importance was minor;

therefore the expectations of financial statement users

thus, it was necessary to consider a method ofwere possibly not be satisfied, and that information

determining

disclosure did not properly reflect diversification of

viablebusinesssegments,

includingconsideration for “the management approach in thecorporate management (ASBJ, 2008, para. 47).

United States” (ASBJ, 2008, para. 42). Furthermore,

9

upon establishing Statement No. 17: Accounting

institutionalization in detail.

38

Board

Yamaji et al. (1994) analyzed the process of theJournal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

relevant costs are, the bigger incentives man-independent as an internal segment, is iden-

agers have. In addition, the managers weretified as an operating segment, and serves asgiven the discretion of freely segmentation be-a reportable segment as it is, I infer that H1

fore the MA was employed. Based on theseis mitigated according to the trend of H2 after

points, I formulate hypotheses as follows. In

adoption of the MA.

this research, hypotheses are described in the

Meanwhile, there are two factors based

form of the alternative hypothesis.

on which I presume that H1 is not ameliorated. The first factor is associated with theH1-1 (H1-2): Businesses with thehigher PC (AC) accompanying segmentroom for the managers’ discretion. In deter-

reporting are aggregated into othersegments before adoption of the MA.

it is allowed to apply the aggregation criteria

mining reportable segments based on the MA,
after “operating segments” are identified(ASBJ, 2008, para. 6-11). Here, as operating

The MA was adopted in the fiscal year

segments are identified based on the unit ofended March 2011. Since the adoption, man-actual internal performance evaluation, room

agers have not been granted, in principle, lib-

for managers’ discretion is fundamentally

erty to aggregate segments and been forced toeliminated; however, there is room for discre-define external segments in faithful conform-tion for applying the criteria 10 , therefore,

ity to internal segments. I expect that the sit-

there is a possibility that the managers inten-

uation in which external segments are too few

tionally aggregate a specific business into an-compared with internal segments will beother segment by applying the criteria. In fact,ameliorated, given that other conditions are

the Financial Accounting Foundation (FAF)

fixed. Thus, I formulate the following hypoth-

pointed out that, as a result of a review afteresis:

the segment accounting standard (FASB,
1997) was applied, investors recognized that

H2: The degree to which each businessdetermination on reportable segments in-is reported by segment becomes greater
after adoption of the MA.

volved managers’ judgment, and, in particular, that managers avoided disclosing competitive confidential information and poorly per-It is difficult, however, to offer an across-forming businesses by applying the aggrega-the-board prediction about how H1 changes

tion criteria (FAF, 2012, pp. 7-8). The U.S. Se-

after MA is adopted. Firstly, on the premisecurities and Exchange Commission (SEC) has

that a business with the larger PC (AC) isalso seen this point as a problem. Wang (2016)

freelyManagers’ arbitrariness is highly likely to intervene insegmentation under an IA; however, under the MA,

segmentation under an IA, and in application of theapplication of the “aggregation criteria” has been

“aggregation criteria” under the MA. Please refer toapproved for determining reportable segments only

Asano (2018, pp. 101-104) for details of the differences

after business segments have been identified according

between an IA and the MA, including room for theto the units of internal business performance evaluation.

managers’ discretion.

10

Managers

were

given

discretion

for

39

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

has revealed, through analysis of 1,392 comment letters (from August 2004 to July 2007)

H3-1a (H3-2a): The trend that busi-

concerning cases where segment reporting

nesses with the higher PC (AC) accompanying segment reporting are aggre-

was improved after the review11

by the SEC

gated into other segments (H1) is ameliorated after adoption of the MA.

for legal disclosure documents, that half of theletters were related to “segment identification
and aggregation” and that the greater companies’ PC accompanying segment reportingH3-1b (H3-2b): The trend that busi-

was, the more the companies were subjected

nesses with the higher PC (AC) accompanying segment reporting are aggre-

to the letters. Based on the aforementioned

gated into other segments (H1) is facilitated after adoption of the MA.

facts, specific businesses are possibly aggregated into other segments in an arbitrary
manner through application of the aggregation criteria” even after the MA has been
adopted, and H1 is facilitated in aspects dif-

(3) Research Design

ferent from that before the adoption.
The second factor is relevant to the char-

1. Dataacteristics intrinsic to the MA. The MA only
requires identifying operating segments ex-

In this section, I describe the data used in

isting in an enterprise and does not ask

verification. To begin with, I establish pseudo-

whether or not business with different profit

segments for each listed company based on

margins are intermingled there. I presume

the internal data of the companies. Internalthat the person in charge of a department of-data are the individual data of the “Basic Sur-ten assumes responsibility for business with

vey of Business Structure and Activities” bydifferent profit margins particularly when thethe Ministry of Economy, Trade and Industry

department is highly independent and higherof Japan (METI) (hereinafter referred to as

authority is given to the person in charge. In“the Basic Survey”). The Basic Survey is asuch cases, H1 is likely to be actually facili-

fundamental statistical survey in accordancetated when the managers strictly apply thewith the Statistics Act, which covers about

MA.

37,000 companies all over Japan, excluding
As the above-mentioned factors affectsome business categories, and collects infor-

each other in a complex manner and it is im-mation, such as “financial statement accounts”

possible to identify beforehand the direction

and “sales breakdown.”of a change which will eventually develop to
H1, I will set the following hypotheses:
11

The review was executed in accordance with Articlecomment letters have been disclosed in the Electronic

408 of the Sarbanes–Oxley Act (officially referred to as

Data-Gathering,

the Public Company Accounting Reform and Investor(EDGAR).

Protection Act of 2002, or SOX Act for short), and the40

Analysis,

andRetrievalsystemJournal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

Table 1 Definition of Variables

Variable Name
(1) Matchij(2) (3) ROA_Highj(Lowj)(4) (5) PBR_Highj(Lowj)(6) Con4j(7) IndHij(8) Post_MAi

Control variables:(9) Privatej(10) Barrierj(11) Fsizei(12) IntSegNi(13) IntSegSizeij

Variable Definition
Binary variable, which is 1 when the industrial code for the pseudo-segment j of Company i accords with the industrial code of the segment fileof Company i based on Nikkei NEEDS, and 0 when the codes do notmatch each other.
[High (low) ROA dummy] Binary variable, which will be 1 when the median of Return on Asset (ROA) in Business Category j is in the 5th quintile of all the companies (the first quintile), and 0 otherwise.
[High (low) ROA dummy] Binary variable, which will be 1 when the median of the Price Book-value Ratio (PBR) in Business Category j is in the
5th quintile of all the companies (the 1st quintile), and 0 otherwise.
[4 company concentration ratio] Total sales of the leading 4 companies in
Business Category j ÷ Total sales of all the companies in Business Category j.
[Herfindahl-Hirschman Index by business category] Σ (Sales of each company in Business Category j ÷ Total sales of all the companies in Business
Category j)2.
[Dummy after MA adoption] Binary variable, which will be 1 when Company i is in the period after the MA has been adopted, or 0 when in the
period before the adoption.
[Proportion of unlisted companies] (Total sales of unlisted public companies ÷ Total sales of all the companies) in Business Category j.
[Barrier to entry] Median of (Fixed assets ÷ Total assets) in Business Category j.
[Corporate scale] Natural logarithm of the total assets of Company i.
[Number of pseudo-segments] The number of pseudo-segments of Company i based on the Basic Survey.
[Scale of pseudo-segment] (Sales in Business Category j ÷ Total sales) of
Company i based on the Basic Survey.

Note: Although the variables of ROA_High (Low), Private, and Barrier are based on listed and unlisted companies contained in the Basic Survey, companies with advanced diversification (which means that the major product accounts forless than 70%) are excluded in order to accurately measure the situation of the business category. PBR_High (Low) was
calculated based on the sample of this research (in accordance with the industrial classification based on Nikkei’s middle
classification). Con4 and IndHi were calculated based on the sales included in the Basic Survey Segment File.

Two processes, however, are required inlisted companies and gave common IDs in ac-order to use the data for analyzing listed com-

cordance with the procedure described in Ap-

panies. Firstly, as either a flag that indicatespendix A “Procedure for Linking Nikkei

whether or not a company is listed or a com-

NEEDS with Data from Basic Survey of Busi-

mon ID to link to the commercial database,ness Structure and Activities.” Secondly, it issuch as a securities number, has not beennecessary to aggregate data on a consolidated

given to the data, in this research, I identified

basis because the data from the Basic Survey
41

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

are on an individual company basis while seg-listed companies, from Nikkei NEEDS Finan-

ment information is on a consolidated basis.

cialQUEST2.0 (hereinafter referred to as

Regarding this point, I also followed the pro-

“Nikkei NEEDS”).

cedure contained in Appendix A for building a
consolidated-based database.
I use the data of “sales breakdown” fromthe Basic Survey for setting up pseudo-seg-

2. Regression Modelments. The “corporate group-based sales
breakdown” created through the aforemen-This research verifies the above-men-tioned processes (hereinafter referred to astioned hypotheses through logit estimation“the Basic Survey Segment File”) contains

with the following equation set as a basic

sales by business category, and the name andmodel. Based on the study by Harris (1998) ascode of the business categories. The industrial

the previous study did as discussed in Section

classification of the Basic Survey is revised

2.1, I have derived the equation below, in-relatively frequently and is not consistenttending to examine whether or not the proba-with either the Japanese Standard Industrial

bility that businesses with the greater PC

Classification codes or the Nikkei industrial(AC) accompanying segment reporting are ag-

classification codes. In accordance with thegregated into other segments is strong. The

procedure stated in Appendix B “Business

definition of each variable is as described in

Category Arrangement,” I unified the indus-

Table 1.

trial code of the Basic Survey in chronologicalorder and created a conversion table for linking the codes with other business category=

codes.

+

I use the data from the Basic Survey for+

purposes other than establishment of pseudo-+

segments. I use the data of “financial statement accounts” for setting up variables by

ℎ

+

_

_

_

+

+

+

ℎ

_

4[

ℎ

]

(2)

business category, such as product market

First of all, I describe the method of es-

concentration rate. As the opinion that major

tablishing the objective variable, Match. As

errors arise if product market variables are

mentioned above, while an industrial code isbased only on the data of listed companies isgiven for each pseudo-segment in the Basicprevailing, I make calculation based on the in-

Survey Segment File, a maximum of three in-dividual data from the Basic Survey that co-

dustrial codes are given by external segmentvers about 37,000 companies each year, in-in the segment file of Nikkei NEEDS. Matchcluding unlisted companies.

is a binary variable that, after being matched

In addition to the aforementioned Basicagainst the code of Nikkei NEEDS for each

Survey data, I obtained financial data, includ-

pseudo-segment, becomes 1 when the pseudo-

ing the publicly available segment data ofsegment accords with the Nikkei code, or 042

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

when they are not congruent with each other.

therefore, I use ROA_High (Low) as a scale for

The variable indicates that, when it is 1, theprofit margin variances among industries13.

pseudo-segment is reported, and in contrast,

However, I report the results of estimation us-that the pseudo-segment is aggregated into

ing ROS_High (Low) for checking the robust-

another segment and is not reported as an in-

ness.
Although the variables of ROA_High

dependent external segment when it is 0.
The independent variable includes the(Low), Private, and Barrier are based onfollowing as proxy variables for the PC (AC):listed and unlisted companies contained in(1) ROA_High (Low) [high (low) ROA dummy]

the Basic Survey, companies with advancedand (2) PBR_High (Low) [high (low) PBR

diversification (which means that the major

dummy]. I deem both to be the proxy varia-

product accounts for less than 70%) are ex-bles for the PC (AC), considering that compet-

cluded in order to accurately measure the sit-itors, shareholders, and other stakeholders

uation of the business category. PBR_High

have interest in not only (1) the current profit(Low) was calculated based on the sample ofmargin but also (2) the future cash flow of

this research (in accordance with the indus-

each business. The actual values of (1) Return

trial classification based on Nikkei’s middle

on Asset (ROA) and (2) Price Book-value Ra-classification). Con4 and IndHi were calcu-

tio (PBR) are not available even from thelated based on the sales included in the Basic

Basic Survey Segment File, thus, I use theSurvey Segment File.

median of each business category as each ex-

Furthermore, I include (3) Con4 [4 com-

pectation 12 . Although (1) profit margin alsopany concentration ratio] and IndHi [Her-includes Return on Sales (ROS), the ROS cor-findahl-Hirschman Index by business cate-

relates negatively with an asset turnover ra-gory] as the proxy variables for the PC14.

tio, which means that it contains errors, andBecause the Basic Survey Segment File includes onlyin the categories being on the decline in thesales for each business category, and the name and code

manufacturing industry. This means that application ofof the industries, it is impossible to calculate the profit

ROS as a profit margin scale will contribute tomargin by pseudo-segment, and thus, I have to rely onunderestimation of the former while resulting in

the expected value by business category.

overestimation of the latter.

12

13

The reason why ROS is not suited to measuring the

14

In the prior research such as Harris (1998), SpeedAdj

profit margin variance among industries is that ROS is(Adjustment Speed Adjustment Speed) is used as asusceptible to asset turnover ratio. According to ourvariable of the competitive situation of the productexamination utilizing the data by business categorymarket, but this variable takes the same sign not only

which are used in this research, it happens not

for PC but also for AC hypothesis (Bens et al. 2011). In

infrequently, compared to other business categories,

the framework of this study, which covers both PC andthat “ROA is high, ROS is low, and asset turnover ratio

AC hypothesis, it is difficult to clearly rationalize thisis high” in categories which handle characteristic

variable, so it is not included in the verification. I would

products among wholesalers and retailers and thatlike to set as future challenges to be left.

“ROA is low, ROS is high, and asset turnover ratio is low”

43

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

worthy variables, in reference to the previous

Post_MA becomes significantly positive, H2 isproven. Furthermore, H3-1a (H3-1b) is sup-work, I include variables that control factors

ported when the coefficient of the cross term

affecting the objective variable Match. Withof the proxy variables for the PC and Post_MA

respect to the plus and minus signs of the co-becomes significantly positive (negative), andefficient of each variable, I deduce the follow-

H3-2a (H3-2b) is confirmed when the coeffi-

ing: the variable Private becomes negative as

cient of the cross term of the proxy variables

the greater the number of private companies

for the AC and Post_MA becomes signifi-

a business category has, the higher the costcantly positive (negative).

In addition to the aforementioned note-related to segment reporting is in the category; Barrier becomes positive because thehigher the barriers to entry are, the lower thecost associated with segment reporting is;

3. Sample

Fsize becomes positive since the larger the
scale of a company is, the more positive stance

The samples used in this research are

the company takes towards financial report-

pseudo-segments of listed companies. I classi-

ing; IntSegN becomes negative because thefied sample selection into the following aslarger the number of pseudo-segments is, theshown in Table 2: (1) selection of listed com-

greater the possibility of aggregation of thepanies based on Nikkei NEEDS and (2) selec-

pseudo-segments is; and IntSegSize becomestion of pseudo-segments based on the Basic

positive as the more considerable the scale ofSurvey.

pseudo-segments is, the higher the chance

In (1), I selected 14,710 firms-years,

that companies submit reports is.

which satisfy the following conditions: they

I estimate Equation (2) with the sample

are not in industries other than construction,

before adoption of the MA regarding H1. H1-

finance, and real estate, they are listed on the

1 is supported when the coefficients of thefirst or second section of the Tokyo, Osaka, or

proxy variables for the PC (ROA_High,

Nagoya Stock Exchange in the period be-

PBR_High, Con4, and IndHi) become signifi-

tween 2000 and 2015, the fiscal year ends incantly negative, and H1-2 is confirmed when

March and an accounting period is for 12

the coefficients of the proxy variables for themonths, the J-GAAP are applied, and consol-

AC (ROA_Low and PBR_Low) are signifi-

idated financial statements and segment in-cantly negative.

formation are disclosed. I excluded the afore-

Meanwhile, concerning H2 and H3, I es-

mentioned business categories in order totimate an equation, which is obtained by add-

avoid the possibility that the Basic Survey

ing Post_MA [dummy after adoption of thedata have not been collected in the long termMA], and the cross term of its variable and theor that the level of accuracy of variables drops

aforementioned proxy variables for the PC

due to broad industry classification.

and AC, to Equation (2), based on all the sam-Then, in (2), I linked the Basic Survey

ples. In the estimation, when the coefficient of

Segment File to the companies selected above.
44

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

The percentage of companies that I failed tobusiness categories whose Basic Survey datalink here is only 16% (2,370 firms-years /were not collected in the long term based on

14,710 firms-years), indicating how high thethe industrial codes given to the pseudo-seg-

response rate and data management stand-ments or whose industrial classification wasard of the Basic Survey is. Finally, I selected

not accurate enough.

firms-pseudo-segments-years,

excluding
Table 2 Sample Selection
firms-pseudo-segments-years

firms-years(1) Selection of listed companies based on Nikkei NEEDS
Firms listed on 1st or 2nd sections of Tokyo, Osaka, or Nagoya
Stock Exchanges (2000 – 2015)

40,424

Less firms that are in construction, finance, real estate, andtransport industries, whose fiscal year ends in other thanMarch or accounting period is not for 12 months, and that do
not disclose consolidated financial statements(18,658)

Less firms that apply the accounting standards other than the
J-GAAPLess firms that do not disclose segment information
Sub total(560)(6,496)
14,710(2) Selection of pseudo-segments based on Basic SurveyLess linkage with Basic Survey: firms that do not have, in
Basic Survey, industrial codes, sales by industry, and otherdata necessary for linking to Nikkei NEEDS
Less firms whose pseudo-segment falls under any of the following business categories: Construction, transport and postal activities, finance/insurance, real estate/goods rental and leasing,
medical services/social welfare, compound services, and otherindustries
Final
sample (firms-pseudo-segments-years)(4) Results

91,844(2,370)(13,062)(139)

78,782

12,201

verification of the hypotheses. I present thestatistical values of the samples before adoption of the MA separately from those after the

1. Descriptive Statistics

adoption in an attempt to observe the changes
before and after the MA was introduced.

Table 3 shows descriptive statistics of thenumber of pseudo-segments, the number ofPanel A shows statistics of the numbers

external segments, and the variables used inof pseudo-segments and external segments
45

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

per company. Before adoption of the MA, theThe correlation coefficients of ROA_Highaverage proportion of the number of external(PBR_High) and ROA_Low (PBR_Low) aresegments to the number of pseudo-segments

0.41 at the maximum, meaning that both ofwas 44.7% (3.39 / 7.58), which is slightly lessthem grasp different factors as inferred inthan 50%. Furthermore, while the standard

Section (3) 2. The correlation coefficients ofdeviation of the number of pseudo-segments

Con4 and IndHi have reached 0.99 (Spear-

was considerable (7.12) and the status of di-man’s rank correlation coefficient), and I

versification in reality varied substantiallydeem both of them, as the product market

from company to company, the standard devi-

concentration rate, to be almost the same asation of the number of external segments waseach other in terms of scale.

slight (1.25) and I observed that the number

Next, I cast a spotlight on the samples af-of external segments tended strongly to be

ter the adoption. The mean value of Matcharound 3 regardless of the progress with di-stands at 0.320, which increased by 0.025

versification. This trend remained almost un-from the mean before the MA adoption. Thischanged after the MA was adopted15.

proposes that the percentage of the pseudo-

Panel B shows the basic statistics andsegment reported as independent externalcorrelation of the variables used in verifica-

segments has risen by 2.5%, which is con-tion of the hypotheses. To begin with, I focus

sistent with H2. Other mean values than thaton the samples before adoption of the MA. The

of Match remain nearly unchanged; however,mean value of Match is 0.295, indicating that

PBR_Low has grown about 10%, suggesting

the ratio of pseudo-segments reported as anthat the proportion of companies that have re-independent external segment is 29.5%. The

cently devoted to businesses with less future

ROA_High (PBR_High) and
ROA_Low (PBR_Low) are 0.193 (0.241) andcash flows, that is, the larger AC accompany-

0.141 (0.145), respectively, which suggests

high possibility that Japanese companies

that sample companies have engaged more inhave not rearranged their business portfolios

business categories with greater profit mar-appropriately

gins and future cash flows than less profitablechanges in the industrial structure.

means

of

ing segment reporting, is rising. There is aagainstthemodern-day

industries with smaller future cash flows.

The proxy variables for the PC (AC) and

Secondly, regarding correlation coefficients,

Match correlated negatively with each other,

the proxy variables for the PC (AC), excluding

excluding ROA_Low and Con4, and the corre-

Con4 and IndHi, relate negatively to Matchlation, compared to that before the MA wasand therefore consistent with H1-1 (H1-2).

adopted, tended to expand in the negative

Nakano (2016) studied the change in the number ofslightly decreased when it came solely to multiple-

external segments before and after adoption of the MA.

segment companies. As the samples of this research

The research presented evidence demonstrating thatwere limited to multiple-segment companies, the results

the number of external segments increased both before

concerning the number of external segments (Panel A,

and after the adoption, including single-segment

Table 3) conforms to the evidence.

15

companies; however, the number of external segments

46

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

direction. The trend is consistent with H3-1b

almost no trend that is in conformance with

(H3-2b). On the other hand, as far as correla-H3-1a (H3-2a).

tion coefficients are concerned, I do not detect
Table 3 Descriptive Statistics
Panel A

Pseudo-Segment vs. External Segment
Before MA (n = 54,149)

After MA (n = 24,633)

mean

medianstandard
deviation

mean

medianstandard
deviation

No. of pseudo-segments

7.58

5

7.12

7.39

5

7.35

No. of external segments

3.39

3

1.25

3.29

3

1.27

Panel B

Basic Statistics and Correlation of Variables
Before MA (n = 54,149)
(1)

(2)

(3)

(4)

After MA (n = 24,633)

Mean

SD

(5)

(6)

(7)

Mean

SD

(1) Match

0.295

0.456

-0.02 -0.04 -0.06 -0.03 0.02

0.03

0.320

0.466

(2) ROA_High

0.193

0.394

-0.02

(3) ROA_Low

0.141

0.348

-0.04 -0.20-0.20 0.41 -0.16 0.09

(4) PBR_High

0.241

0.428

-0.06 0.41 -0.05(5) PBR_Low

0.145

0.352

-0.03 -0.16 0.06 -0.23(6) Con4

0.274

0.132

0.03

0.08 -0.02 0.16 -0.03(7) IndHi

0.037

0.040

0.02

0.08 -0.02 0.19 -0.06 0.89

(1)

(2)

(3)

(5)

(6)

(7)

-0.09

0.00 -0.10 -0.11

(4)

0.01

0.02

-0.19 0.26 -0.27 0.08

0.06

-0.02 0.06

0.07

0.08

-0.33 0.21

0.21

0.09

0.212

0.409

-0.09

-0.05 0.06 -0.03 -0.03

0.119

0.324

0.00 -0.19-0.23 0.13

0.13

0.242

0.429

-0.10 0.26 -0.02-0.01 -0.02

0.253

0.435

-0.11 -0.27 0.06 -0.33

0.99

0.276

0.139

0.00

0.06

0.09

0.22 -0.19

0.038

0.043

-0.02 0.05

0.07

0.23 -0.17 0.89

-0.18 -0.19
0.99

Note: In this table, the control variable is omitted. Regarding correlation, values in the lower part of the diagonal are the Pearson’s correlation coefficient and those in theupper part are the Spearman’s rank correlation coefficient, and the bold-faced values indicate they are significant at the level of 10% (two-sided test).

2. Verification Results of Hypotheses(Businesses with the higher PC accompanying segment reporting are aggregated into

The results of the verification of the hy-other segments before adoption of the MA)

potheses are as shown in Table 4. Although

was supported. The coefficient of ROA_Highthe control variable is omitted due to the pa-

was significantly positive, which was not con-per size limitation, the signs of all the varia-

sistent with H1-1. Meanwhile, the coefficientsbles, excluding Fsize, are as presumed in all

of ROA_Low and PBR_Low as the proxy forthe estimations.

the AC were significantly negative, and there-

Firstly, I pay attention to columns (1) offore, H1-2 (businesses with the higher AC ac-

Table 4 based on the samples before adoption

companying segment reporting are aggre-of the MA. As the coefficients of PBR_High,gated into other segments before adoption ofCon4, and IndHi, all of which serve as a proxy
for the PC, were significantly negative, H1-1

the MA) was supported. These results haveindicated a significantly strong probability
47

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

that, before adopting the MA, the managers

profitable businesses with lower present

aggregated less competitive businesses withvalue into other segments and did not report

more enormous present value, or lessthem as independent segments.

Table 4 Verification Results of Hypotheses
Independent Variable
Post_MA

Expected
Sign+

ROA_High-

ROA_High × Post_MA±

ROA_Low-

ROA_Low × Post_MA±

PBR_High-

PBR_High × Post_MA±

PBR_Low-

PBR_Low × Post_MA

±

Con4

-

Con4 × Post_MA

±

IndHi

-

IndHi × Post_MA±

Year effectObservations
2

Pseudo-R(1) Samples before MA
(1.1)
(1.2)

0.347***(6.05)

0.356***(6.20)-0.260***(-4.60)-0.265***(-4.69)-0.268***(-4.71)-0.265***(-4.66)-0.151**(-2.15)-0.161**(-2.31)-1.149***(-5.19)-4.027***(-5.51)included
54,149included
54,149

0.211

0.211

(2) All Samples
(2.1)
(2.2)
0.728***
0.744***(7.83)(10.44)0.325***
0.333***(5.67)(5.82)-0.400***-0.404***(-4.92)(-4.96)-0.262***-0.267***(-4.62)(-4.70)0.122
0.126(1.43)(1.48)-0.242***-0.240***(-4.25)(-4.22)-0.358***-0.344***(-4.37)(-4.22)-0.182**-0.191***(-2.52)(-2.65)-0.333***-0.319***(-3.35)(-3.21)-1.033***(-4.80)-0.0635(-0.25)-3.538***(-5.03)-1.001(-1.11)includedincluded
78,78278,782
0.226

0.227

Note: *, **, and *** represent statistical significance at the levels of 10%, 5% and 1%, respectively (two-sidedtest). Equation (2) was estimated through logit regression. The numerical values shown in parentheses are the Zvalue based on the robust standard deviation with the corporate cluster adjusted. The intercept and control variable
are omitted here.

Secondly, I give our attention to columns

brought into shape, when other variables(2) of Table 4 based on all the samples. The

were fixed, in both estimations, the extent tocoefficient of Post_MA was 0.728 in (2.1) andwhich the pseudo-segments are reported be-

0.744 in (2.2), both of which were significantly

came 2.1 times higher, or up 11%, from that

positive; thus, H2 (The degree to which eachbefore the adoption 16 , which is a powerfulbusiness is reported by segment becomespiece of evidence that indicates the actual de-greater after adoption of the MA) was sup-velopment of positive effects of the MA adop-

ported. With the scale of the coefficient being

tion.

16

Based on the odds ratio and the mean value of themarginal utility.

48

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

Then, regarding H3, I focus on the crossenvironment to change in the post-adoption

terms of the proxy variables for the PC

period; however, the estimation results shown[ROA_High, PBR_High, Con4, and IndHi]

in Table 4 are basically robust. Furthermore,

and those for the AC [ROA_Low andaccording to the estimation I conducted by re-

PBR_Low], and Post_MA. Among the crossterms, as no cross term had a significantly

placing ROA_High (Low) with ROS_Highpositive coefficient, H3-1a (H3-2a) (The trend

cient of the variable was consistent with allthat businesses with the higher PC (AC) ac-

the signs of the coefficients of the variables re-companying segment reporting are aggre-

lated to ROA_High (Low) in Table 3. Throughgated into other segments (H1) is ameliorated

a significance test, however, I found results

after adoption of the MA) was not supported

different

at all. On the other hand, the coefficients of

ROS_High×Post_MA was not significant andthe respective cross terms between Post_MA

that the coefficient of ROS_Low×Post_MA

and ROA_High, PBR_High, and PBR_Low

was significant, both in columns (2.1) andwere all significantly negative in both estima-(2.2) of Table 4. Although the fact that the co-tions, thus, concerning these variables, H3-1befficient of ROS_Low×Post_MA was signifi-(H3-2b) (The trend that businesses with thecantly positive supports H3-2a, I believe that,higher PC (AC) accompanying segment re-even when I take the aforementioned addi-

porting are aggregated into other segments

tional pieces of evidence into account, there is(H1) is facilitated after adoption of the MA)

little evidence proving that the trend of aggre-

was supported; however, as the cross terms ofgation of businesses with the greater PC (AC)Post_MA respectively with ROA_Low, Con4,

accompanying segment reporting into otherand IndHi were not significant in either of thesegments is ameliorated after adoption of theestimations, neither H3-1a (H3-2a) nor H3-1b

MA, because the ROS contains errors as a

(H3-2b) was supported for these variables.

profit margin scale variance among indus-(Low), I confirmed that the sign of the coeffi-

According to the above-mentioned results

in

that

the

coefficientoftries as mentioned above.

in relation to H3, the trend that businesses
with the greater PC (AC) accompanying seg-(5) Conclusion

ment reporting are aggregated into other segments remain strong, and any evidence on

As described above, this paper has veri-

mitigation of the trend has not been obtained

fied managers’ discretionary behavior towardat all. In addition, some evidence indicating

segmentation by matching pseudo-segments I

that the trend has been facilitated rather

established using internal data of listed com-than mitigated after the adoption of the MA

panies against external segments. The evi-has been found.

dence discovered through this paper is as fol-

In columns (2) of Table 4, I estimated onlylows:

samples in 2006 and later because the MA

Firstly, I obtained a robust piece of evi-

had not been adopted for 11 years (2000-2010),

dence that conforms to the PC and AC hy-

which was long enough for the economic

potheses that suggest a strong trend that,49

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

before adopting the MA, the managers of Jap-

accounting standards in that it suggests thatanese companies did not report by segment

there is room for intervention of the managers’

the performance of less competitive busi-

arbitrariness in decisions on reportable seg-nesses with higher present value or less prof-

ments. Based on the samples used in this re-itable businesses with lower present value.

search, although some evidence has shown

Secondly, examining the situations after thethat factors that facilitated the aforemen-adoption, I found a piece of evidence revealing

tioned trend are greater than factors mitigat-

that, given that other conditions were fixed,

ing it, I did not contain in the scope of thethe degree to which the pseudo-segments

analysis what kind of effect was brought

were reported increased 2.1 times, or 11%,

about by each factor, particularly each of thecompared to the period before the MA was in-

two facilitating factors, and therefore I havetroduced; however, not all businesses were

not elucidated the question. In addition, inter-

started to be reported equally. The trend that

action effects between these factors and otherbusinesses with the greater PC or AC werefactors, such as the effectiveness of the gov-

not reported for each segment remained

ernance system and characteristics of corpo-

strong, and I obtained little evidence that sup-rate organizations, possibly have developed.

ports mitigation of the trend. I uncovered

As Accounting standards setters such as

some evidence, if anything, which demon-

FASB have been focusing on the issues sur-strates that the trend was facilitated after therounding decisions on reportable segments

MA adoption.

under the MA and seeking methods for im-

However, it is necessary to be carefulprovement (FAF, 2012; FASB, 2013; FASB,

about interpreting the evidence relating to2018), it is important to reveal these points,

the effects of the MA toward the trend thatwhich has been left as a challenge for this re-businesses with the greater PC or AC weresearch.

not reported by segment. As stated in Section

Although the above issues remain un-(2) 2, the following are two factors that facili-

solved, this research has successfully re-tated the trend when managers determinedvealed unsettled facts regarding the manag-

reportable segments: a possibility that theers’ discretionary behavior in segment report-

managers intentionally aggregated specificing. This research has made contributions bybusinesses into other segments by applying

using internal data and publicly available“the aggregation criteria” and a possibility

data of Japanese listed companies in combi-that the managers facilitated rather thannation and presenting the very first evidence

mitigated aggregation of business groups

concerning the managers’ discretionary be-with different profit margins by stringently

havior toward segmentation before adoption

applying the MA through which the businessof the MA, and the effects and issues of thewere mixed. These are the issues coherent the

adoption against the behavior.

MA, eventually the segment accounting standards. Especially the former raises an extremely important problem for setting up
50

Journal of Japanese Management Vo.3, No.2, May 2019ISSN 2189-9592

Accounting Standards Codification Topic
280, Segment Reporting). FAF.

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Accounting Standards Board of Japan [ASBJ].
(2008). Statement No. 17. Accounting

Financial

AccountingStandards

Board

Standard for Disclosures about Segments[FASB]. (1976). Statement of Financial Ac-of an Enterprise and Related Information.
(in Japanese)counting Standard [SFAS] No. 14. Finan-Ali, A., S. Klasa, and E. Yeung. (2009). The

Enterprise. FASB.
――. (1997). SFAS No.131. Disclosures about

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Limitations of Industry Concentration

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――. (2013). Response to the Financial Ac-

Measures Constructed with Compustat
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The Review of Financial Studies 22 (10), pp.
3839-3871.

counting Foundation's Post-Implementa-

Asano, T. (2018). Kaikei Jouhou To Shihontion Review (PIR) Report on FASB Statement No. 131, Disclosures about Segments

Shijou: Henyou No Bunseki To Eikyou (Accounting Information and Capital Market:
Analysis and Influence of Transformation).

of an Enterprise and Related Information.
FASB.
――. (2018). Project Update: Segment Report-

Tokyo: Chuo Keizaisha (in Japanese).
Bens, D. A., P. G. Berger, and S. J. Monahan.

ing.

(2011). Discretionary Disclosure in Finan-(https://www.fasb.org/jsp/FASB/FASBConcial Reporting: An Examination Compar-

tent_C/ProjectUpdateExpand-ing Internal Firm Data to Externally Re-

Page&cid=1176170647220)

ported Segment Data. The Accounting Re-

Harris, M. S. (1998). The Association between

view 86 (2), pp. 417-449.
Berger, P. G., and R. N. Hann. (2007). Seg-

Competition and Managers' Business Seg-

ment Profitability and the Proprietary andcounting Research 36 (1), pp. 111-128.
Hayes, R. M. and R. Lundholm. (1996). Seg-

ment Reporting Decisions. Journal of Ac-

Agency Costs of Disclosure. The Account-ing Review 82 (4), pp. 869-906.
Botosan, C. A., and M. Stanford. (2005). Man-

ment Reporting to the Capital Market inagers’ Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on

Accounting Research 34 (2), pp. 261-279.
Industrial Structure Council. (2017). 8 Secre-

Analysts’ Information Environment. The

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Accounting Review 80 (3), pp. 751-771.

Industrial

the Presence of a Competitor. Journal of

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(http://www.meti.go.jp/commit-(2012). Post-implementation Review Re-

tee/sankoushin/shin_sangyoukou-

port on Statement of Financial AccountingStandards No. 131 (SFAS 131). Disclo-zou/016_haifu.html) (in Japanese)
International Accounting Standards Boardsures about Segments of an Enterprise andRelatedInformation(Codifiedin[IASB]. (2006). International Financial Reporting Standard [IFRS] 8. Operating Seg-

ments. IASB.
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Keisei Katei (Process of Formation of Japanese Corporate Accounting). Tokyo: Chuo

Office Data with Corporate Information:

Keizaisha, pp. 153-196. (in Japanese)

Matsuura, T., K. Hayakawa, and S. Suga.

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Nakano, T. (2016). Changes in Accounting

Acknowledgement

System for Segment Information and Dis-I have gratefully benefited from the manyclosure Information: From Institutionali-

helpful commentsfromKenji Hayashi,zation to Adoption of MA. Accounting andMasashi Okumura, Naoki Tsujikawa, Akira

Audit Journal 28 (7), pp. 90-97 (in Japanese).

Usui, Masao Watanabe, Takashi Yaekura,Wang, Q. (2016). Determinants of Segment

at Waseda University and Japan Accounting

Disclosure Deficiencies and the Effect ofAssociation’s the 76th annual meeting, as

the SEC Comment Letter Process. Journal

well as anonymous referees of Kaikei Pro-of Accounting and Public Policy 35 (2), pp.

gress (Accounting Progress) and Journal of

109-133.

Japanese Management. I also acknowledge financial support from JSPS KAKENHI Grant

Kazuhiro Yasui, and workshop participants

Yamaji, H., K. Suzuki, A. Kajiwara, and Y.
Matsumoto. (1994). Japanese Process of

Numbers 16K04009.

Establishing Segment Information Disclosure System. Nihon Teki Kigyou Kaikei No

Appendix A

Procedure for Linking Nikkei

are congruent completely with those of

NEEDS with Data from Basic Survey of Busi-

the Basic Survey. Adopting the following

ness Structure and Activities

account titles in descending order, including (a) assets, sales, cost of sales, and sell-(1) Linkage of Listed Companies Contained ining and general administrative expenses

Nikkei NEEDS with Basic Survey Data

(in the unit of 10 million yen), and forcompanies that did not match, (b) the
aforementioned titles in the unit of 100

I linked them in accordance with the1.

following procedure:

million yen, (c) assets and sales (in the

Using only the data of specific numericalunit of 10 million yen), and (d) assets andaccounting figures and corporate names

sales (in the unit of 100 million yen), I

that do not overlap with those of othermoved ahead with the procedure step bycompanies, I matched listed companies

step.
2.

contained in Nikkei NEEDS against onesConcerning the companies contained inincluded in the Basic Survey under the

Nikkei NEEDS that do not match any

condition that the accounting figures andcompanies in the Basic Survey in Step 1

the corporate names of Nikkei NEEDS

above, I divided the data by rank of assets
52

Journal of Japanese Management Vo.3, No.2, May 2019and sales (in increments of 10 billion yen,

Appendix B

with the number of ranks being 1,501)

ment

ISSN 2189-9592

Business Category Arrange-

and compared the data of NEEDSThe Basic Survey has employed its

against the data of the Basic Survey

unique industrial codes which are based on

based on the corporate names by utilizing

the three-digit codes of the Japanese Stand-only data of corporate names that do not

ard Industrial Classification (hereinafter re-overlap with other companies’ names.

ferred to as the “JSIC”) and have been revised

I listed companies included in Nikkei

seven times since 2000. Meanwhile, the JSICNEEDS, which did not match companies

given to the segment file of Nikkei NEEDS

in the Basic Survey in the steps above,

was based on the standard of 2002 (11th revi-

and visually checked them according tosion) for settlement of the accounts in or be-

the address of their respective headquar-

fore May 2014 and has been based on theters, phone numbers, and other infor-

standard of 2013 (13th revision) since Junemation for matching them against their2014. Furthermore, I calculated the PBR bycounterparts.

business category in accordance with Nikkei’s

I referred to the research by Matsuura et

middle classification. In order to link the JSIC

al. (2007) when establishing the aforemen-

and Nikkei’s middle classification with thetioned procedure as the studies clearly de-

Basic Survey industrial classification, I con-scribe procedures for linking individual data

ducted the following procedure; Firstly, I uni-of the government statistics, such as the Basic

fied the Basic Survey industrial codes chron-

Survey, with each other.

ologically in accordance with the standard of3.

2004. Then, I established respective conver(2) Identification of Parent Company andsion tables for linking the JSIC and Nikkei’s

Subsidiaries in Companies Included in Basic

middle classification to the unified codes

SurveyCovering companies other than the listed(Received: November 30, 2018)

companies contained in the Basic Survey,(Accepted: April 20, 2019)

which were identified in the above process (1),firstly, I identified the parent-subsidiary relationship based on the data of “securities codesof the parent company.” Then, within thescope in which the “parent company name”
does not overlap, covering companies otherthan the aforementioned ones, I identified therelationship between the parent company andsubsidiaries, including indirectly owned subsidiaries.

53