ISSN 2189-9592

Vol. 3, No.2, May 2019Japan Federation of Management Related
Academies

Vice President
Fangqi Xu (Japan Creativity Society, Kindai University)
Editor-in-Chief
Yukio Takagaki (Japan Academy of Management, Surugadai University)
Editorial Board
Shintaro Abe (Japan Academy of Consumer Education, Josai International University)
Takabumi Hayashi (Japan Scholarly Association for Asian Management, Tokyo Fuji University)
Toshio Goto (Japan Academy of Business Administration, Japan University of Economics)
Hisamitsu Ihara (Japan Society for Applied Management, Tokyo Fuji University)
Jun Oeki (Lanchester Society, Tokyo University of Science)David T. Methé（Japan Creativity Society, Kwansei Gakuin University）

Masayasu Takahashi (Japan Academy of Business Administration, Meiji University)
Kim Hua Tan (SFHEA :Senior Fellow of Higher Education Academy, University of Nottingham)
Akira Uchino (Japan Society of Business Mathematics, Senshu University)
Hideo Ueki (Knowledge Management Society of Japan, Tsukuba Gakuin University)
Masamichi Yoshioka (Global Academic Community, Tokyo University of Science)
Advisory Board
Kazuo Hiramatsu (Japan Accounting Association, Kwansei Gakuin University)
Nobutaka Kazama (Association for the Study of Industrial Management (Japan), Meiji
University)
Takayuki Nonoyama (Japan Association for Management Systems, Aichi Sangyo University)
Takao Nuki (Association for the Study of Industrial Management (Japan), Musashi University)
Koji Okubayashi (Japan Society of Human Resource Management, Osaka International
University)
Yoshihiro Tokuga (Japan Accounting Association, Kyoto University)

ISSN 2189-9592

Vol.3, No.2, May 2019Japan Federation of Management Related
Academies

Vol.3, No.2, May 2019©2019 Japan Federation of Management Related Academies
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The original English language edition published by JFMRA.

Greetings to Our Readers on the Sixth Issue of
the Journal of Japanese Management
The Journal of Japanese Management is an official publication of the Japan Federation ofManagement Related Academies (JFMRA). I am very pleased with the sixth electronic
publication (Vol. 3, No. 2) of this scholarly journal of JFMRA. Through this journal, we aim tocontribute to international academic progress through advanced studies in wide-ranging
research fields related to management, management information, commerce, and accounting.
JFMRA was originally established through the affiliation of 57 academic societies in the fields
of management, accounting, and commerce on November 23, 2006.
I was appointed as the chief director of JFMRA on April 1, 2018. We gradually plan tochange the composition of the editorial board to include some internationally renowned and/or
active researchers in the aforementioned fields to ensure that this journal is suitable for aninternational audience.
To date, economic inequality, global environmental issues, the aging and depopulating ofsocieties, accelerated development of new and emerging markets, or innovations like theInternet of things (IoT), artificial intelligence (AI), open innovation, and linkages that foster
innovation have changed our lives and generated numerous research themes for our
researchers. Accordingly, a wider ranging interdisciplinary approach that calls for cooperation
beyond the existing academic framework of an individualistic society is needed. Therein lies
the significance of JFMRA.
JFMRA has been focused on the following: (1) the development of research and spread ofknowledge in fields related to management, management information, accounting, andcommerce; (2) research and contributions to society through education related to management;(3) exchanges between various academies and researchers associated with management; (4)cooperation with researchers overseas related to management; and (5) cooperation with the
Science Council of Japan and academic research communities working closely with it. JFMRA
also organizes public lectures twice each year, an occasional meeting for the exchange of ideas
among members of the affiliations, as well as an annual symposium. I rejoice at the release of
the sixth issue, and would like to thank the members of the Journal of Japanese Management(JJM) editorial board, especially Professor Fangqi Xu, the vice-president of JFMRA, andProfessor Yukio Takagaki, the chair of the editorial board. I am sure that this journal is beyond
the expected levels of many academic researchers at home and abroad, and I am confident that
it will stimulate the readers intellectually.
Dr. Yoshihiro Tokuga
President, Japan Federation of Management Related Academies
Vice -president and Professor, Kyoto University, Kyoto, Japani

Preface
I am very pleased to announce on the sixth electronic publication (Vol. 3, No. 2) of the

Journal of Japanese Management (JJM), which is an official publication of the Japan
Federation of Management Related Academies (JFMRA).
Though many academic associations exist in Japan, few appear to be active indisseminating Japanese knowledge abroad, particularly in the social sciences. It is incumbent
on us to continue to conduct research on Japanese managerial practices that emphasize soundbusiness management and disseminate relevant strategies to the world.
Needless to say, even if individual academic associations were interested in actively
doing so, limited resources make it difficult to accomplish such a task. Fortunately, many
academic associations representing management, commerce, accounting, and management
information are participating in the Japan Federation of Management Related Academics(JFMRA). One of the main means of knowledge dissemination is the publication of an academic
journal in English. In today’s highly networked society—thanks to the Internet—, there is no
doubt that electronic journals should be the most appropriate media accessible to anyone atanytime, anywhere in the world.
There are three categories of JJM papers; (1) paper of regular and/or equivalent
members (such as postgraduate members, etc.) of the some affiliated academic associations of
JFMRA; (2) selected paper from the international conference hosted by or sponsored by
JFMRA.; (3) English translation of best paper from dissertation. For further detail, pleaserefer to our web site < http://www.jfmra.org/jjm/>.
As the representative of the editorial board, I would like to acknowledge ourappreciation to those academic associations that participated in this effort; additionally, weare grateful to the manuscript contributors and reviewers for their cooperation. We continue
to work hard for the further development of JJM.
Dr. Yukio Takagaki
Editor-in-Chief Journal of Japanese Management
Board member, Japan Federation of Management Related Academics
Professor, Faculty of Economics and Business, Surugadai University, Saitama, Japanii

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

Contents

The OCB Inducement Process: Mediating Effect of Work Values Sharing ・・・・・・・・p.1
Yutaka Ueda

Verification of Asymmetric Cost Behavior in Merged Local Public Enterprises・・・・・p.19
Shohei Nagasawa

Recommended paper by Japan Accounting Association
Managers’ Discretionary Behavior in Segment Reporting: A Study Based on the Internal Data of Japanese Listed Companies ・・・・・・・・・・p.34

Takayuki Nakano

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

The OCB Inducement Process: Mediating Effect of Work Values
Sharing
Yutaka Ueda
Faculty of Economics, Seikei University
Japan Society for Information and Management (JSIM)
Email: ueda@econ.seikei.ac.jp
Abstract
Organizational citizenship behavior (OCB) is one of the most intensely investigated research
topics in organizational behavior (OB). Compared to research focusing on the antecedents of
OCB, there are far fewer studies that theoretically consider or empirically examine therelationship between OCB and its subsequent effects. This study aims to focus on the mediating
effect of work values sharing on the relationship between supervisor’s OCB and subordinate’s
OCB in a given organization. Shared work values comprise the foundation of this study in which
employees perform their jobs smoothly without prior promises or explicit communication on how
other employees behave at work. A supervisor’s OCB can become a language with which he or
she communicates his or her work values to subordinates, and these subordinates areencouraged to exhibit their own OCB. By analyzing the data collected from 2,000 Japaneseemployees, this study empirically examines the effect of supervisors’ OCB-I (OCB forindividuals) on subordinates’ OCB-I and OCB-O (OCB for the organization), which is partiallymediated by work values sharing.
Keywords: OCB (organizational citizenship behavior), OCB-I (OCB for individuals), OCB-O(OCB for the organization), work values(1) Introduction

on OCB was first conducted by Western

Organizational citizenship behavior (OCB)

researchers using Western samples in thehas received a significant amount of attention

1980s and early 1990s; OCB has also beenfrom researchers in organizational behavior

focused on and empirically examined by(OB) around the world since Dennis W. Organ

researchers in Asia and other countries sinceand his co-researchers proposed the ground-the late 1990s (Farh, Early, & Lin, 1997; Ueda,

breaking idea that a worker’s job satisfaction2009).

has a greater impact on his or her

Although a large number of studies havediscretionary contributive behaviors to thefocused on OCB thus far, they can essentiallyorganization (that is, OCB) than his or her

be classified into three groups according toformal role behaviors (Bateman & Organ,

their research objectives (Organ et al., 2006;

1983; Smith, Organ, & Near, 1983). Research

Ueda, 2004, 2016). The first group addresses
1Journal of Japanese Management Vo.3, No.2, November 2019ISSN 2189-9592

the concept or dimensions of OCB. They aimof these behaviors has little impact on otherto deepen discussions on the concept andemployees or the organization. Only after

dimensions of OCB. The second groupthese small behaviors have accumulated overincludes research that aims to determine thea long period of time can an explicit effect on

antecedents of OCB. This group is further

the organization be revealed.

divided into several subgroups focusing on theSecond, the characteristics of OCB also

individual, task, group, and organizational

tend to inhibit researchers’ investigation on

antecedents. Finally, there is a group of

the impact of OCB on the organization. Somestudies that address the effect of OCB on

typical behaviors of OCB, such as “help[ing]individual or organizational factors.

others,” “punctuality,” and “does not take

Among these three categories, the concept

extra breaks,” (Smith et al., 1983) areor dimension of OCB was primarily discussed

inherently good and necessary for thein the 1980s and 1990s. A large portion oforganization. One also tends to develop some

OCB research has focused on the individual

illusions about the positive effects of theseor organizational antecedents of OCB andbehaviors on the organization that one does

conducted empirical studies to determine thenot have to consider because they seem to besignificant impact of these antecedents on

clear. However, it is not sufficient to easily

various dimensions of OCB (Organ et al.,conclude that these behaviors are good for the

2006; Ueda, 2004, 2016). In contrast, how anorganization, as will be discussed later.

employee’s OCB impacts other employees or

As a nod to this trend in OCB research, thisthe organization has received far lessstudy aims to focus on how OCB impacts

attention from researchers.

others and the OCBs of others and proposes a

Generally,

comparedtothecausalnewframework

that

can

be

used

to

relationship between antecedents and OCB,

understand the causal process between theit is much more difficult to empiricallyfirst OCB to subsequent OCBs or from one

examine the relationship between OCB and

employee’s OCB to another’s OCB. An

its subsequent effects. One of the reasons for

empirical study was conducted to confirm thethis is related to the concept of OCB itself.

validity of our framework. The next section

Among several definitions of OCB, every OCB

classifies past research, focusing on the effectresearcher recognizes that the followingof OCB on consequent effects. The third

definition by Organ (1988) is most often cited:section considers the important role of work

“(OCB

is

values sharing as a mediator between OCBs.

explicitly

Following our proposed hypotheses, the fifth

recognized by the formal system, and that inand sixth sections address the study’s

theeffective

empirical method and results. The discussionfunctioning of the organization” (Organ, 1988,

and conclusion are delineated in the final twop.4). From this definition, OCB consists ofsections.

is)individual

discretionary,notaggregate

behavior

directly

promotes

or
the

that

small behaviors by many employees, and each2

Journal of Japanese Management Vo.3, No.2, November 2019ISSN 2189-9592(2) Classification of Research on the Effects of

implications for researchers, it cannot be said

OCB

that this research examines the effects of

As described above, there are far fewer

OCB. These researchers merely measure how

studies that address the effects of OCB on

widely managers consider their subordinates’

individual or organizational factors than“obligatory”

those focusing on the antecedents of OCB.

researchers found that subordinates’ OCB

Despite the limited number of studies, thispositively

type of research can be further classified into

evaluation of them, they did not find the effectthe following three categories: (1) researchof OCB on supervisors’ perceptions, but

regardingpersonnelrather supervisors’ implicit tendencies toevaluation of an OCB performer by his or her

consider a wider range of subordinate

supervisor, (2) research focusing on OCB’s

behavior,

effects on the psychological outcomes or

evaluations. This is because they know theseproductivity of an OCB performer, and (3)behaviors are not only effective but also

research investigating OCB’s effects on thenecessaryoutcomes or productivity of the group or theorganization.

OCB’s

effectsonorganization that an OCB performer belongs

job

roles

influences

including

for

the

to
their

OCB,

be.

Even

if

supervisors’

forfunctioning

their

of

the

The research in the second category focusesto.

on the effect of OCB on performers. These

Researchers in the first category havestudies vary depending on the type of effectattempted to empirically determine whether

they focus on, such as OCB effects on worker

managers comprehensively consider not only

productivity (Bergeron, Ostroff, Schroeder, &task performance but also the OCB of

Block, 2014), stress (Bolino, Turnley, Gilstrap,

subordinates when conducting evaluations& Suazo, 2010), and intention to leave the(MacKenzie, Podsakoff, & Fetter, 1991, 1993).

organization (Bolino et al., 2010; Paille,

For example, MacKenzie et al. (1993)

Bourdeau, & Galois, 2010; Paille & Grima,

empirically examined the relative impact of2011).

the rated performance of various OCBs and

For example, Bergeron et al. (2014) focused

objective sales productivity on sales managers’

on the effect of two types of academic

performance evaluations of their salespersons.

members’

Morrison (1994) also empirically indicatedTypically, academic members belong not onlythat a supervisor and his or her subordinates

to the employing organization but also to adiffered

regardedprofessional organization, and their OCB issubordinates’ various behaviors as in-role orclassified into internal OCB, which directly

extra-role, and how broadly they considered

contributes to the employing organization,

subordinates’ job responsibilities. Lam, Hui,and external professional OCB, which isand Low (1999) also found that supervisors

directly related to a professional organization,

had broader definitions of job roles than did

such as an academic society. They empiricallytheir subordinates.

revealed that internal OCB had a negativein

whetherthey

Although these findings have important

OCB

on

their

performance.

impact on individuals’ productivity and career3

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

outcomes, while external professional OCB

for any two separate (independent) activities

had a positive influence.

that are conducted during working hours.

Bolino et al. (2010) paid attention to the fact

Therefore, they should have revealed thatthat employees often feel pressured tothis effect comes not from extra role behaviors

perform OCBs as “good soldiers” in thein general, but from extra contributive

organization because they know OCBs are

behaviors to the organization.

often informally encouraged and rewarded.

The final category is related to research

They named this type of pressure “citizenshipthat aims to empirically determine whetherpressure,”

OCB contributes to some concrete measuresandempirically

found

that

citizenship pressure and actual OCB wereofsignificantly correlated with job stress, work-

effectiveness (Dunlop & Lee, 2004; Ehrhart,family conflict, work-leisure conflict, and theBliese, & Thomas, 2009; Koh, Steers, &intention to quit. Paille et al. (2010) also

Terborg, 1995; Podsakoff & MacKenzie, 1994;

indicated

Podsakoff, Ahearne, & MacKenzie, 1997).

that

OCB-O

(OCB

for

the

organization) had a negative impact on theorganizational

performanceor

For example, Podsakoff and MacKenzie

intention to leave.

(1994) aggregated the OCBs of 839 sales

Compared to research in the first category,agents in 116 sales units in a major insurance

these studies have addressed some of thecompany in order to compile unit-level OCB,

effects of OCB on individual consequentand examined the impact of these unit-levelfactors. However, among these findings, theOCBs on agency performance. They founddiminishingthat

impacton

productivity

or

civic

virtues

andsportsmanshipincreasing impact on stress might not be thepositively affected unit performance, but

only effects attributable to the outcomes of

helping behavior negatively impacted unit

OCB. They might commonly occur in any

performance.

situation in which employees have to engage

examined the effect of the aggregated workin behaviors that go beyond what theycrew members’ OCBs on quantity and quality

consider to be a part of their formal jobs.

measures of work crew performance. TheyIn this context, Bergeron (2007) proposed

found

that

Podsakoff

helpingetal.

behavior(1997)

andthe resource allocation model. According tosportsmanship had a positive impact on

his idea, for any employees, “(w)ithin aperformance, while civic virtues had no effectspecified time interval (e.g., a day, week, oron either performance measure. Further,year), individuals make certain resource

while Koh et al. (1995) found a positive effectallocation decisions as to where to spend theirof helping behavior on school performance intime” (Bergeron, 2007, p.1083). He further

schools in Singapore, Dunlop and Lee (2004)

notes that “individuals must make choices as

did not find a significant effect of helping

to how much time to allocate to task

behavior, civic virtues, and sportsmanship on

performance versus OCB” (Bergeron, 2007,

several performance measures, such as

p.1084).

counter service time and unexplained food

However, this tradeoff relationship holds

figures at fast food restaurants.
4

Journal of Japanese Management Vo.3, No.2, November 2019As

described

before,becauseISSN 2189-9592

each

bad employee understand and master theemployee’s OCBs are usually too small andwork. It can also make a good employee

subtle to influence the whole organization, it

experience significant additional stress.

is not meaningful to relate one individual’sThus, helping a bad employee often utilizes

OCB to the effectiveness of the organizationa good employee’s time and energy, which isunless it is ensured that this individual, suchimportant to the organization. When we

as a CEO, has sufficient power to drive theconsiderorganization. Many employees’ OCBs shouldorganizational performance, we have to

be

the

implicitly assume that, through this type oforganizational variable, assuming that thehelping and helping process, a bad employee’sorganization is composed of this employee

increased productivity is worth more than a

type. Then, if it is empirically revealed thatgoodthose aggregated OCBs have a positive

However, a good employee is often the mostimpact on organizational performance orefficient employee, and a bad employee often

someorganizational

does his or her job less efficiently. Thus,

effectiveness, this empirical result is not only

organizational performance could worsen ifconvincing but also complies with Organ’s

helping means that the time and energy of an(1988) original definition of OCB.

efficient employee is sacrificed for the sake ofaggregatedmeasuresandrelatedoftoHowever, even if this relationship isthat

helping

employee’s

contributes

decreasedtoproductivity.

a less efficient employee.

statistically evident, it is not clear how or

We have to move beyond an over-simplified

through what processes actual OCB canargument that the helped employee will

enhance organizational performance. For

contribute significantly to the organization

example, every researcher recognizes thatand need to develop a more persuasive logical“helping” is a typical OCB. How can a goodfoundation regarding what happens to other

employee’s assistance to a bad employee

employees and the organization when OCB iseventually

performed.

enhanceorganizational

performance?
One might consider that if the performance(3) The Role of Work Values Sharingof a bad employee is improved through the

1. Reciprocal Relationship between Helping

help of a good employee, the performance ofand Helped Persons

the whole organization should necessarily

While OCB researchers have consideredalso be enhanced. However, only focusing onthat helping is one of the most basic

the improvement of the performance of a bad

dimensions of OCB, it is rare that they

employee is too simplistic. In many cases,

address how a person considers the help or

helping a bad employee is a significant

behaves after they are helped. However,undertaking. In particular, when he or she is

helping is not a special behavior performed

slow in comprehending how the work should

only in the organization but a common

be done, a good employee has to expend

behavior frequently performed in a variety ofsignificant time and energy in order to help aspaces. Thus, researchers outside of the field5

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

of organizational behavior have also paid

Takagi and Senoo (2006) also considered theattention to this behavior. In particular,

possibility that this process spreads beyond

researchers

in

have

this dyadic helping–helped relationship. They

addressedtheregardingempirically confirmed that a helped person

interpersonal relationships between helping

was encouraged to help not only the person

and helped persons (reviewed by Ito, 2012;

who once helped him or her but also other

Mizuno & Ishikuma, 1999; Nishikawa &persons beyond this dyadic relationship

Takagi, 1986).

because a helped person expects that helping

socialpsychology

problem

In most cases, they focus on a reciprocal

will contribute to the helping person’s growth

relationship between two focal persons. A

and development.

person tends to be more likely to help a person

In this way, social psychology research on

who previously helped him or her. This focus

helpingbehavior

is different from OCB researchers who

phenomenon that helping or helped persons

address helping behavior in the organization.

recognize

OCB researchers discuss the situation intransformation

which a person helps another person in theexperiencessame organization regardless of whether thisHowever, they have not considered the effectother person had previously helped him or her.

of helping behavior on employees’ perception

In contrast, some researchers in socialof work situations within the organization.

psychology also discuss the possibility that

How have OCB researchers considered thishelping behavior could have some effectpoint?

thehas
growththatathroughaddressedtheor

personal

helping

personhelpingbehavior.

beyond interpersonal relationships between
helping and helped persons. For example,

2. What is Work Values Sharing?

Takagi (1997) proposed a model that assumed

Although each employee is required to workthat a helping person evaluates his or her

cooperatively

help not only in terms of how effective it wasorganization, the employee’s behaviors arein solving the problem of a helped person but

not in principle completely controlled by otheralso from the perspective of how it contributed

employees. Employees have to communicate

to

with

his

or

her

personal

growth

and

each

with

other

co-employees

aboutvariousinthethingsdevelopment. It further assumed that aregarding their work, including their attitude

helped person also considers the value of the

toward the work and their co-employees.

help he or she received not only by judging

Different methods of communication arewhether the help was useful in solving his or

required depending on the organizational

her problem, but also from the perspective ofsituation (Daft & Wiginton, 1979; Daft &whether the help advanced the growth and

MacIntosh, 1981; Daft & Lengel, 1986). Whiledevelopment of the helping person. The effect

explicit language is appropriate to conveyof this type of evaluation can further facilitate

concrete,both actors’ assistance of other persons

language—including subtle motions

beyondpostures—is also used and is sometimes more

theirinterpersonal

relationship.
6

definitive

things,ambiguousandJournal of Japanese Management Vo.3, No.2, November 2019

appropriate

forcommunicating

ISSN 2189-9592

diverse,without explicit communication or promises

complicated ideas such as how to workand allows employees to determine how they

cooperatively in an uncertain situation.

should behave at work.

Particularly, in organizations in which aApositive

psychologicalhumanlimited number of people know each other andrelationship between employees needs to be

are working together for a long time, even if

established in the organization for eachno explicit language is used to communicate

employee to perform his or her job smoothly

between employees, each employee’s behavior

without worrying about how other employees

becomes an important message to otherare performing their jobs. OCB is considered

employees who have to coordinate their work

to be one of the typical organizationalin order to cooperate with each other. In otherbehaviors that allows a positive atmospherewords, each employee knows what to do

to be cultivated in which every employee

without exchanging explicit words with otherworks

employees.

previously determined or nothing is explicitly

The core of this implicit language that is

comfortably

even

if

nothing

iscommunicated.

communicated through employees’ behaviors

Although each OCB is a small, subtle

is the criteria for attitude and positivity

behavior, employees observe other employees’

toward jobs, supervisors, and co-employees.

OCBs or, at least, the results of their OCBs.

This is referred to as work values. Here, work

For example, if they often see some employees

values are “more specific than general human

helping others (helping behavior as OCB-I

values, but are more abstract than both

(OCB for individuals)) (Williams & Anderson,

vocational interests and attitudes toward1991), they come to consider the spirit of

specific work” (Lyons, Higgins, & Duxbury,

cooperation as

2010, p.971), and we refer to “values as theorganization. They also consider that if they

underlying psychological criteria that guidefind themselves in trouble, someone willancertainsurely lend a helping hand. They are likely to

behaviors and outcomes” (Lyons et al. 2010,

experience low anxiety, even without priorp.972).

promises or contracts with the organizationindividual's

Even

preferences

without

in theappropriate

regarding when and how they are to be helped.

communication or explanation, employees

In a similar way, when they see that many ofwork in a harmonious way if they share

their co-employees proactively participate incommon work values in which each canevery meeting (conscientiousness as OCB-O

imagine what others consider and how they

(OCB for the organization)) (Williams &perform certain jobs. This type of work values

Anderson, 1991), they do not worry that asharing

work

plan will fall through because of theharmoniously in the organization. Work

negativity of many of the participants at avalues sharing can more precisely be definedmeeting.

enables

prior

for

being pervasive

employees

toas a type of infrastructure that makes
employees expect other employees’ behaviors
7

Journal of Japanese Management Vo.3, No.2, November 2019(4) Hypotheses

ISSN 2189-9592

H5: Work values sharing will have a positive

It is considered that work values are shared

impact on subordinate’s OCB-I.

among employees not through one employee’s
behavior but through many employees’

Following from this set of hypotheses, welongtime contributive behaviors. Nonetheless,assume that work values sharing partiallya supervisor is an iconic figure in amediates

department or organization. His or her

subordinate’s OCB. When a supervisor

behavior and values have a huge impact on

performs OCB-I, subordinates may simply

his or her subordinates’ behaviors. Past

emulateresearch revealed that instrumental andmediating effect of work values sharing. This

supportive leadership behavior is positively

means that only the partial mediating effectrelated to subordinates’ OCB (Podsakoff,of work values can be assumed. Even when a

MacKenzie,

Shnake,subordinate performs OCB-O, as Takagi

Cochran, & Dumler, 1995). Adkins and Russel(1997) imagined the effect on a subordinate’s(1997) also revealed that a supervisor’s

perception of some benefit received by thevaluing of fairness relates to his or her

OCB performer,

subordinates’ performance.

considered to link two persons’ OCBs. These&

Bommer,1996;

If a supervisor often helps a newcomerasupervisor’s

similarOCB

behavior

andwithoutathea different process ishypothetical relationships are shown inperform his or her job, a spirit of mutual

Figure 1.

support is created in the department. Other
employees also come to believe that theyshould help when someone is in need andexpect that they will be helped when they are
in need.
Here, we focus on the effect of supervisors’
OCB-I

on

the

OCB-I

and

OCB-O

of

subordinates. The following hypotheses were
proposed.

Figure 1 Hypothetical Model (Partial
Mediation Model)

H1: Supervisor’s OCB-I will have a positive
impact on subordinate’s OCB-O.

(5) Research Method

H2: Supervisor’s OCB-I will have a positive

1. Sample

impact on subordinate’s OCB-I.

This study utilized data from an “attitude

H3: Supervisor’s OCB-I will have a positive

survey of people in their 20s and 50s with

impact on work values sharing.

college degrees regarding their job growth,

H4: Work values sharing will have a positive

2010” by Recruit Works Incorporated (RWI).1

impact on subordinate’s OCB-O.

RWI collected the data in March 2010 using

The survey was conducted through theInternet. Among registered people, those who

met the conditions of having attained a college
degree, were currently employed, and were1

8

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

an Internet survey and deposited the data atinordinately on the visible behaviors of

the Center for Social Research and Dataattention seekers (Bolino, 1999; Schnake,Archives

Social1991). The method of blending OCB items

Sciences, the University of Tokyo. CSRDA

into various work behaviors is also consideredgave the author permission to use the data.

effective in investigating subtle OCB in

The sample comprises 2,000 people withJapanese organizations.

(CSRDA),

Instituteofcollege degrees who work as regular or nonregular

employees(1,000males,All the following items are measured using

1,000

a regular five-point scale ranging from [1]females).

“not at all” to [5] “very often / always.”2

Subordinate’ OCB-I: The questionnaire
2. Variables

investigated how many of the 36 listed

Although these data were not originallyactivities respondents engage in during theircollected to explore employees’ OCB, somework. Four of these items were selected as

scale items were considered to be appropriate

representative behaviors of OCB-I. The

measures of OCB and work values sharing

average of these four items was calculated.

withConcretely, they were “I take on a leadershipcarefulattentiontotheinternal

reliability between these items.

position,” “I am asked by those around me forThis study then utilized OCB items that

advice,” “I encourage co-employees to build

were slightly different from those establishedbetter human relationships,” and “I raiseby past researchers in the West. This method

someone well.”may have made it difficult to compare our
empirical results to those of Western studies.

Subordinate’s OCB-O: As with asubordinate’s OCB-O, five items were used.

However, appropriate items with which OCB

Concretely, they were “I have my own goal forcan be measured are dependent on national

my daily job,” “I am aware of the speed of mycultural factors (Farh, Earley, & Lin, 1997;

growth,” “I am aware of job performance,” “IOrgan et al. 2006). Further, Williams andmake my own challenges,” and “I try various

Anderson (1991) also first collected data on

methods.”

various behaviors and then separated OCB

Supervisor’ OCB-I: As the variable for a(OCB-I and OCB-O) from in-role behaviors. In

supervisor’s OCB-I, eight items out of thirty

fact, if only OCB items rather than various

were selected to enquire about a current

work behavior items, which include both OCB

supervisor: “he or she helps me,” “he or she is

and in-role behaviors, are shown in theclosely involved with me,” “because he or shequestionnaire,

watches over me, I can try a difficult job withrespondents

may

focus

aged between 22 and 59 years were asked toanswer the questionnaire.
2 The questionnaire has 36 items that ask
employees about the frequency of various
behaviors using terms such as “did difficult
things,” “required high performance,” and“competed with other employees.” Further, it
included 30 items asking about theirsupervisors’ behaviors, including “engaged
honestly with me”, “listened to my opinions”,
and “attractive as a person.” For more detailed
information on this survey, see
https://ssjda.iss.utokyo.ac.jp/Direct/gaiyo.php?lang=eng&eid=08
45
9

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

a sense of security,” “he or she provides a

Next, structural equation modeling (SEM)

pleasant working environment,” “he or she

was used after the basic statistics—such as

lends an ear in a time of need,” “he or shemeans, standard deviations of the variables,

motivates me,” “he or she gives good advice

and the correlations between two variables—

promptly when he or she notices that I needwere calculated. Although SEM is usuallyit,” and “he or she suggests me my goodused to confirm the assumed validity of thepoints.”model chosen by the researcher, we compare

Work values sharing: Work values sharing

possible models to determine the best one.

is a newly proposed concept, and there is no

Although we assume the partial mediating

question item that directly enquires about it.

effect of the work context between two

Thus, we selected appropriate items out ofdifferent OCBs, other models that assume fulltwenty to examine how respondents feel inor no mediating effect of the work context

their working and daily lives, assuming thatwere considered as possible alternatives. It isthey have good feelings if they share work

thus crucial to compare our hypotheticalvalues with other employees.

model and the alternative models in order totest our hypotheses.

For example, when an employee shares workvalues with other employees at the workplace,he or she comes to believe that he or she can go(6) Result

through life with these values given that most

1. Result of EFA and CFA

employees spend so much of their time at work.

First, EFA was conducted to examine

Further, it is difficult to compare one’s values

whether all the question items wouldwith those of others in the organization; it isconstruct the predetermined variables. As themore effective to recognize shared work values

results in Table 1 show, all of the items were as

by asking about the individual’s impressions of

expected. Four factors explained 60.04 percent

daily life.

of the total variance (principal axis factoring,

Concretely, the following four items werepromax with Kaiser normalization).

used as variables for the work context: “I

Next, we also conducted CFA to confirm thethink I can live by my own values in society,”validity of our four-dimensional model. Table“I think others around me understand me

1 depicts some indices of reliability and inter-well,” “I am confident that I can live my life incorrelationsofmy own way in society,” and “I think I cancorrelations

arefulfill my potential in society.”significance level). First, all the values of

all

four

constructs

significant

at

a

(all
0.05

Cronbach’s alpha are over 0.7, those of AVE
3. Analytical Method

are over 0.5, and those of CR are over 0.7,

First, exploratory factor analysis (EFA) was

which

indicates

that

they

satisfytheutilized to examine whether the items

conditions of reliability (Hair, Black, Babin, &construct predefined variables. Confirmatory

Anderson, 2010; Said, Badru, & Shahid, 2011).

factor analysis (CFA) was also conducted toFurther, the measures of goodness of fit are

determine the reliability of the variables.

χ2 = 976.966, df = 183, CFI = 0.945, TLI =10

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

0.931, and RMSEA = 0.047; these values are

assumes that a supervisor’s OCB-I has two

also satisfactory. Therefore, according to theseparate effects on a subordinate’s OCB. One

results of the CFA, it can be concluded that

effect is a direct positive impact on a

our four-dimensional model is valid (Table 2).

subordinate’s OCB-O [1] or OCB-I [2]. The
other effect is indirect—a supervisor’s OCB-I

Table 1. Result of Pattern Matrix of EFA

initially has an effect on work values sharing

Pattern Matrix[3], and this work values sharing influences a

Factorsubordinate’s OCB-O [4] or OCB-I [5].

12
34SubOCB-I1-0.1140.066-0.0430.763
SubOCB-I2-0.019
0.002
0.044
0.606
SubOCB-I3
0.096
0.239
-0.0610.400
SubOCB-I4
0.023-0.1190.072
0.748
SubOCB-O1
0.080
0.626
0.025
0.064
SubOCB-O2
0.026
0.640
0.015
0.177
SubOCB-O3-0.0090.777-0.0530.034
SubOCB-O4-0.0590.995-0.010-0.111
SubOCB-O5-0.0020.803
0.045-0.086SupOCB-I1
0.823-0.027-0.021-0.099SupOCB-I2
0.846-0.0170.013-0.008SupOCB-I3
0.866-0.0170.055
0.008
SupOCB-I4
0.843-0.057-0.023-0.009SupOCB-I5
0.857
0.010
-0.010-0.044SupOCB-I6
0.806
0.077
-0.001
0.073
SupOCB-I7
0.790
0.072
0.009
-0.117SupOCB-I8
0.764-0.013-0.0200.172
WVS1-0.007-0.0540.775-0.033
WVS2
0.058-0.069
0.556
0.124
WVS3
-0.0100.045
0.905-0.064WVS4-0.036
0.089
0.673
0.057
Extraction Method: Principal Axis Factoring.
Rotation Method: Promax with Kaiser Normalization.
a Rotation converged in 6 iterations.

Customarily, SEM examines whether paths
betweenconstructs

aresignificant

and

whether measures of goodness of fit meetcriteria to determine the validity of the modelthat represents hypothetical causal andcorrelational relationships. However, one
drawback of this method is that it is not
sufficient to simply determine significant
relationships

betweenvariablesinthehypothetical model. Our study aims toconfirm that considerations relating to workvalues sharing necessarily explain the effectof certain OCBs on other OCBs. Thus, SEM
has to reveal that our hypothetical model isbetter than alternative models in terms of
measures of goodness of fit.

Table

2.

IndicesofReliability

and

For this purpose, the goodness of fit of other

Correlations between Two Constructs
variables
Subordinates'
OCB-I
Subordinates'
2
OCB-O
Supervisor's
3
OOB-I
Work Values
4
Sharing1

considered. For example, the model with [3],Cronbach's
alphas

AVE

CR

0.807

0.516

0.810

0.875

0.592

0.878

0.593

context fully moderates the relationship

0.944

0.678

0.944

0.227 0.386

between

0.836

0.57

0.840

0.388 0.419 0.251

subordinate’s OCB. The model with only [1],1Correlations
2models with or without paths should be3[4], and [5] paths considers that the workasupervisor’s

OCB

and

a

[2], and [3] assumes that the work context has
2. Hypothesis Testing

no effect on subordinates’ OCBs. Concretely,

The analysis was conducted as follows.

this study adopted the specification searchFirst, the partial mediation model shown inmethod of AMOS. According to this method,

Figure 1 was examined through SEM. A

each path is added to and removed from themediating relationship can be relative easilymodel, and the validity of each of the 32 (25 =examined by applying SEM. Our model32) models is examined (Table 3).
11Journal of Japanese Management Vo.3, No.2, November 2019ISSN 2189-9592

Table 3 Comparison of All 32 Models
models

arrow

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18

None
4
5
1
3
2
4, 5
1, 2
1, 4
3, 4
2, 4
1, 5
3, 5
1, 3
2, 5
2, 3
1, 2, 3
1, 4, 5

19

3, 4, 520
21
22

1, 2, 42, 4, 5
1, 2, 523

1, 3, 524

2, 3, 425
26
27

1, 3, 42, 3, 5
1, 2, 4, 5

names ofmodel

direct model
full mediation
model

full mediationand direct-1
full mediationand direct-2

partialmediationand direct-1
partial
29 1, 2, 3, 5 mediationand direct-2
partial and full
30 1, 3, 4, 5
mediation-1
partial and full
31 2, 3, 4, 5
mediation-2
partial
32 1, 2, 3, 4, 5 mediation
model
28

1, 2, 3, 4parameters
63
64
64
64
64
64
65
65
65
65
65
65
65
65
65
65
66
66

df

C

C-df

AIC 0

BCC 0

BIC 0

CFI

TLI

RMSEA

189
188
188
188
188
188
187
187
187
187
187
187
187
187
187
187
186
186

25015.3
24732.82
24794.18
24965.53
24999.14
25005.73
24469.76
24626.93
24699.5
24713.3
24723.26
24744.41
24777.1
24784.36
24791.27
24882.19
24328.34
24437.73

24826.3
24544.82
24606.18
24777.53
24811.14
24817.73
24282.76
24439.93
24512.524526.3
24536.26
24557.41
24590.1
24597.36
24604.27
24695.19
24142.34
24251.73

778.338497.864559.217730.569
764.179770.775
236.802393.969466.537480.336490.301
511.448544.144551.396558.311649.225
97.378206.767778.227497.775
559.128730.48764.09770.686236.735
393.902466.471480.27490.234
511.382544.077551.329558.244649.159
97.333206.723750.333475.461536.814708.166
741.776748.371219.999377.166449.735
463.534473.499494.646527.341534.593541.508
632.42386.176
195.566

0.878
0.897
0.893
0.881
0.879
0.879
0.915
0.905
0.900
0.894
0.898
0.897
0.899
0.894
0.893
0.887
0.925
0.918

0.851
0.874
0.869
0.854
0.851
0.851
0.896
0.882
0.876
0.869
0.874
0.872
0.875
0.869
0.868
0.861
0.907
0.898

0.068
0.063
0.064
0.068
0.068
0.069
0.057
0.061
0.062
0.064
0.063
0.063
0.063
0.064
0.064
0.066
0.054
0.057

66 186 24448.75 24262.75

217.795

217.75206.593

0.917

0.897

0.057

66 186 24465.82 24279.82
66 186 24467.76 24281.76
66 18624526
24340

234.859236.8
295.042234.814236.755
294.998

223.657
225.598283.841

0.916
0.916
0.912

0.895
0.895
0.890

0.057
0.057
0.059

66 186 24538.36 24352.36

307.401

307.356296.199

0.911

0.889

0.059

66 186 24571.46 24385.46

340.501

340.456

329.299

0.908

0.886

0.060

66 186 24677.01 24491.01
66 186 24773.05 24587.05
67 185 24255.43 24070.43

446.054542.089
26.474446.01542.045
26.452434.852530.887
20.873

0.901
0.895
0.930

0.877
0.869
0.913

0.062
0.064
0.052

67 185 24293.26 24108.26

64.30164.279

58.7

0.927

0.909

0.053

67 185 24311.88 24126.88

82.92

82.89877.319

0.926

0.908

0.054

67 185 24413.85 24228.85

184.889

184.867

179.289

0.919

0.899

0.056

67 185 24445.68 24260.68

216.72

216.698

211.119

0.917

0.896

0.057

68 184 24226.96 24042.96

0

0

0

0.932

0.915

0.052

When the specification search method was

OCB-O that is significantly influenced by aadopted, it showed that our hypotheticalsupervisor’s OCB-I.

model [model 32] is the best model according

The more subordinates perceive theirto the measures of goodness of fit. This model

supervisor as “helping me” or “is closely

has CFI = 0.932, TLI = 0.915, and RMSEA =involved with me,” the more subordinates

0.052. Although the value of RMSEA might betend to perceive that they “encourage co-slightly higher than the criteria, it can be

employees

concluded that this model has high validity.

relationships” and “have my own goal for myThis model demonstrates that it is not only

to

build

betterhumandaily job.” Furthermore, the model depicts

a subordinate’s OCB-I but also his or her

this effect as being partially mediated by
12

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

work values sharing, which enhances therequired. Western ideas consider that anperception that “I think I can be myself in

employee hopes to repay the organization forsociety.” All the paths are significant for the 5tangible and intangible benefits he or she has

percent significance level. From this result,received from the organization based on the

all of our hypotheses are supported.

social exchange between the organization andan employee (Organ, 1988). Further, this idea
can be applied not only to OCB-O but also to
OCB-I, which helps other employees or asupervisor in the organization, by assumingthat a helping employee considers employees
who he or she has helped to finally contributeto the organization.

Figure 2 Result of the Partial Mediation

In contrast, Hui, Lee, and Rousseau (2004)

Model

described“(a)perspective

ignoring

interpersonal ties is likely to be inadequate in(7) Discussion

accounting for organizational commitment

The results of this empirical analysis show

and citizenship behavior in the context of thethat considering work values sharing is

Chinese organization-employee relationship”

effective for understanding the processes by(Hui, Lee, & Rousseau, 2004, p.233). In bothwhich a supervisor’s OCB has an effect on a

Chinese and Japanese society, employees

subordinate’s OCB.

tend to consider not only their relationships

As previously mentioned, some past studies
insocialpsychology

regarding

with

the

organization

but

also

their

the

interpersonal relationships with others in therelationship between helping and helped

organization when they perform OCB-I. Their

persons have revealed that the helped person

OCB-I is exhibited not as a way to receive

sometimes tends to help others other than thebenefits

from

the

organization

helping person when he or she considers thatconsiderationofmaintaining

helping contributes to a helper’s sense of

relationships with other employees in thegrowth or accomplishment. From this finding,organization. Hui et al. (2004) described thisit could be easily inferred that employees

point as follows:

similarly tend to exhibit more OCB when they

but

in

good

“The Chinese are expected to relate to anreceive OCB from their supervisor in theorganization

organization. The unique contribution of thisrelationships that exist between individuals

study is the finding that work values sharing

and

can

Chinesemediatetherelationshipbetweenemployees’ OCB and their supervisor’s OCB.

their

throughsuperiors.

peopletheHence,

tend

particular
traditional

toapproachorganizations ‘thinking interpersonally,’ inTraditionally, there are two beliefs of why

contrasttotheWestern

view

of

the

OCB is performed by employees who know

employment relationship that is based uponthat these types of behaviors are not formally‘thinking organizationally’.” (Hui et al, 2004,
13

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

p.233)ISSN 2189-9592

dimensions, and some of the OCB items used

To judge the relative persuasiveness ofhere are different from those establishedthese two ideas, we must refer to theitems. However, as described previously, it isempirical result; while the effect of aalso true that the actual behaviors thatsupervisor’s OCB-I on a subordinate’s OCB-I

should be considered as OCB are culturally

can be interpreted in either the Western or

dependent (Organ et al., 2006); it might be

Asian framework, it is much easier to explain

effective to identify and adopt appropriate

the effect of a supervisor’s OCB-I on a

behaviors among those that are in accordance

subordinate’s OCB-O by using the Westernwith the established definition of OCB.

framework. This finding is very important

Second, measuring shared work values isbecause it means that the validity of the

problematic. In fact, it is quite difficult toWestern framework is supported despite themeasure how much work values are shareddata having been collected from Japaneseamong

employees.

Although some studies have proposed scale

employeesinanorganization.

items to examine work values (Fields, 2002),(8) Conclusion

work values sharing has a similar effect onThis study aimed to propose a new

employees’ minds as that of organizationalframework to understand the effect of OCB

culture.

As

Schein(2016)

described,

and empirically examine its validity. In

organizational

cultureis

explicitly

particular, this study empirically revealed

recognized by employees because it is toothat a supervisor’s OCB had a positive impact

natural for them to be conscious of it.

on subordinates’ OCB, and this relationship

Therefore, we had to accept the use of proxy

was found to be mediated by their sharedvariables to represent work values sharing.

work

We selected certain items assuming thatvalues.

This

indicatesthatasupervisor’s OCB can become a language with

employees

which

are

understood by other employees and are ablecommunicated to his or her subordinates; into act like themselves if they have sharedturn, this encourages subordinates to havework values with other employees. Therefore,

the same work values and exhibit their own

this variable does not directly measure theOCB.

degree of sharing work values but rather

his

Although

or

her

this

work

to

believetheyarecontributes

tomeasures an employee’s mindset that is

proposed frameworkbyexpected to be produced by work values

focusing on the effect of sharing work values

sharing. However, the relationship between

between two OCBs, it has several limitations.

the employee’s mindset and work values

First, this study utilized data collected by an

sharing is not obvious and should be further

outside institution with objectives other thaninvestigated.

confirming thestudyvaluescomenottesting our hypotheses. Many western OCB
researchers

havequestionnaire

items

developedtosetsmeasureThird, we assumed the existence of aofrelationship between OCB, work values

OCB

sharing,14

andanother

OCB.

However,Journal of Japanese Management Vo.3, No.2, November 2019

employees are not, or are not able to be,

ISSN 2189-9592

anonymous reviewers.

explicitly conscious of work values sharing.
Therefore, to properly explain the effect ofReferences

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toKenkyukanrenshita
kenkyunodoukou(Help-seeking

preferences and help-seeking behaviors:

doukouAn
16

overviewofstudies).

KyouikuJournal of Japanese Management Vo.3, No.2, November 2019

Shinrigaku Kenkyu (The Japanese
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citizenship behavior and the quantity andElizabeth,W.

(1994).

Role

quality

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group

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perspective. Academy of Management―――

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and

Scott

B.

MacKenzie(1994).

Organizational citizenship behaviors andtaisuru henrei koudou no kenkyuu: Hienjo

Journal ofMarketing Research, 31(3), pp.351-363.

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Effects

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M. Shahid (2011). Confirmatory factor

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――― and Francois Grima (2011). Citizenshipandwithdrawal

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Relationshipbetweenorganizational

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18

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

Verification of Asymmetric Cost Behavior in Merged Local PublicEnterprises
Shohei Nagasawa
Graduate School of Social Sciences, Department of Business Administration
Tokyo Metropolitan University, Japan
Japanese Association of Management Accounting, Japanese Cost Accounting Association, and Japanese Accounting Association
E-mail: nagasawa-shohei@ed.tmu.ac.jp
Abstract
In this study, the author verifies how the cost behavior of Japanese local public enterpriseschanges before and after municipal amalgamations, and also clarifies the effect of the amalgamation of municipalities on their cost management. While it is expected that merged public organizations acquire advantages (i.e., synergy effects and economies of scale) through expanding
the organization size and increasing management resources, these factors affect resource adjustment costs upon the amalgamations, which influence cost behavior. In order to confirm theeffect of amalgamations on resource adjustment costs, the author analyzes a panel of 17,049
financial data points from 1999 to 2013 and finds that sticky costs were strengthened after municipal amalgamation. Thus, the administrative capability of resource adjustment declined after
municipal amalgamations. The results of this study do not suggest that synergy effects or scaleadvantages arise in post-merged local public enterprises. These results may be due to three main
factors: the possibility that expanding the organization size may increase the inefficiency of thefunctional organizational structure; the growing scale of management resources may increase
committed capacity costs; and the institutional restriction, that public service must be provided
even if unprofitable, may be affected from the viewpoint of public interest as a specific problemof public organization.
Keywords
Local public enterprises, Amalgamation, Sticky costs, Anti-sticky costs, Adjustment costs(1) Introduction

tors, such as changes in the external environ-This study examines how public organiza-

ment, and management decisions. For thistion administrators manage their costs

reason, it is important to understand cost be-through municipal amalgamations with a fo-

havior when managing costs. In traditional

cus on the change in cost behavior as astudies on cost behavior, changes in cost andmethod for verifying cost management.

activity levels are explained in a linear andCost behavior is affected by a variety of fac-symmetric function. Also, in terms of cost19

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

classification, costs consist of fixed and varia-

and acquisitions (M&A) (Jang et al. 2016).

ble costs. However, the capacity costs-related

M&A is expected to bring the economies ofstudies have a different perspective fromscale effect of gaining a competitive ad-

their traditional counterparts. They also con-vantage by acquiring the capabilities of thefirm that a non-linear relationship appears

external organization and converting them tobetween costs, which includes the adjustment

internal resources (Vermeulen and Barkema,of management resources and activity levels

2001). Synergy effects may also be contem-(Anderson et al., 2003). In other words, anplated with the acquisition of the manage-

asymmetric cost behavior appears between

ment resources and capacity of the other com-an increase and decrease in activity. Ander-

pany following a merger (Capron, 1999; Grae-son et al. (2003) coined the term “sticky costs”

bner et al., 2010).

(or “cost stickiness”) for the phenomenon in

However, few cases of mergers exhibit thewhich the cost reduction rate when activity

expected effect (King et al., 2004). After afalls is smaller than the cost increase rate

merger, the improvement of financial indica-when activity rises. These studies look at

tors is confirmed in the short term, but a neg-changes in cost behavior from the perspective

ative effect on innovation is reported then theof capacity costs, including changes in man-new organization cannot achieve the compet-

agement resources (Noreen and Soderstrom,

itiveness of long-term companies (Hitt et al.,1997).

1991). In the research on empirical cost be-

One of the factors that cause sticky costs ishavior, Sepasi and Hassani (2015) pointed out

the influence of resource adjustment costs

that sticky costs are strengthened in the case(e.g., Anderson et al., 2003; Banker et al.,of both large organization size and large scale

2013; Günther et al., 2014). Resource adjust-of management resources, rather than small

ment costs are generated when management

ones. Therefore, the firm size is one of theresources are adjusted to match the activity

things that can affect cost stickiness. In thelevel. Günther et al. 2014 organized and de-case of M&A, Jang et al. (2016) indicated that

scribed the relationship between holding

the association between cost stickiness andcosts and adjustment costs based on the priorsynergies could be a negative effect. Espe-

cost stickiness literature. In terms of human

cially, the scale of tangible assets also affects

resources, for example, when activity in-sticky costs more negatively after mergers.

creases, the costs of hiring and training new

In general, municipal amalgamations are

employees are incurred; conversely, dismiss-also expected to provide the benefits of scale

ing employees involves compensation costs,

and synergy effects. Furthermore, it issuch as retirement allowances according to le-thought that municipal amalgamations cangal requirements. In terms of material re-provide efficient and effective public services.

sources, for example, when the facilities or

From this point of view, the verification of theequipment are integrated by mergers, these

efficiency of services and the effect of fiscal re-events may incur disposal expenses, reloca-

duction has been carried out in the fields oftion expenses, and repair expenses.

public finance and public economics. The var-

One of the greatest fluctuations in timing ofious studies in these fields can be categorizedmanagement resources is an event of mergers

according to three claims: those that find20

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

amalgamation effects, those that do not findmanagement due to municipal amalgama-

amalgamation effects, and those that explain

tions.

that the effect is limited. In other words, these

The article proceeds as follows. Section 2

studies have not reached a conclusion on

discusses the characteristics of LPEs and thewhether the amalgamations of municipalities

effect of municipal amalgamations. Section 3

are effective or not.

presents a review of the literature on public

Therefore, in this study, the author intends

organization cost behavior and develops theto verify the effects of municipal amalgama-

research hypotheses. Section 4 describes thetions focusing on cost behavior, namely,

research methodology, including the sample

whether the administrators in merged munic-

data, the variable measures, and the models.

ipalities manage their costs to improve effi-

Section 5 presents and discusses the results.

ciency or effectiveness from the viewpoint of

Finally, Section 6 concludes with a discussion

cost management in comparison with pre-of the limitations of this study and sugges-

amalgamation costs. At the same time, ittions for future research.

means to clarify how the cost behavior fluctuates due to resource adjustment costs changes(2) Characteristics of LPEs and Effects of Mu-

by amalgamations.

nicipal Amalgamations

As the research subject, this study focuses

1. Characteristics of LPEs

on local public enterprises (LPEs) in Japan as

LPEs in Japan deal with functions, such as

representative municipalities. Since LPEs

the water supply, industrial water supply,

adopt the same accounting methods as for-sewer, automobile transportation, railways,

profit enterprises, they are suitable for ana-electricity, gas, and hospitals, and each mu-

lyzing public organizations using existing em-

nicipality deals independently with its own

pirical research methods for cost behavior.

businesses. These services can be provided

Furthermore, the management of LPEs is

not only by LPEs, but also by commercial en-

also integrated as part of municipal amal-

terprises. However, before starting such busi-

gamations. Under LPE law, LPEs are consid-

nesses, government approval and authoriza-

ered a part of municipal organizations. How-tion are required, since these services are crit-ever, from the viewpoint of business manage-ical necessities for living. In other words,

ment, the mayors generally give management

LPEs provide public goods and services based

authority to the LPEs’ administrators so thaton public interest and operate mainly in thethey can manage their LPEs independently

areas where commercial enterprises do not dofrom municipalities. LPEs generally provide

business because they are not profitable orservices, such as water services, and receive

they need to large investment (Oshima, 1971).

service charges. Therefore the LPE adminis-

The organizational forms of LPEs have

trators have to manage based only on theirsome unique characteristics. Since a LPE isservice charges without depending on taxes

an internal bureau of a municipal organiza-

from municipalities.

tion, it is not completely independent from a

Therefore, by analyzing LPEs, it is possible

municipality under the law. However, LPEs

to understand not only public organizations’have their own business administrators apartcost behavior, but also the changes in cost21

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

from the mayors who are the heads of the mu-

Hence, the material resources of a LPE might

nicipalities. Therefore, administrators man-mainly consist of high committed capacity

age LPE businesses independently from mu-costs. Furthermore, a LPE may be in charge

nicipalities. This business system is intendedof social infrastructure facilities, such as

to allow LPE administrators to make quick

dams and piping for the water supply or roll-and flexible cost management decisions sinceing stocks and rails for transportation, which

their services should be provided efficiently

require large-scale equipment. Thus, given

and effectively (Kawarata, 2005). Additionally,

these ratios, one of the problems for LPE

LPEs’ settlements and budgets are also sepa-

management is a low fixed asset turnoverrate from those of municipalities. Thus, LPEs

rate1. Therefore, LPE administrators shouldhave to continue to provide stable services tomanage in the direction of reducing the idle

residents based only on the service charges

capacity in material resources in order towithout depending on taxes from municipali-manage their LPEs more efficiently. They also

ties. On the other hand, LPEs are not fully in-have to reduce their equipment repair or

dependent from municipalities because themaintenance costs.

management of the LPE administrator must

Finally, it is important to understand the

be monitored by the local parliament and thefeatures of human resources in the context ofmayor to ensure that the public services are

LPEs. LPE employees are guaranteed almost

provided safely and continuously. For thisthe same status as that of public officers. By

reason, LPE administrators cannot make im-law, LPE administrators must continue toportant management decisions on their own

employ their workers. For this reason, even if

but rather must get approval from the mayors

the business situation deteriorates, the dis-and local parliament. In other words, themissal of LPE employees is difficult for LPE

mayor and councilors who are elected as rep-administrators. Even after municipal amal-

resentatives oversee the state of LPE man-gamations, LPE administrators are obliged toagement. LPE administrators have their own

continue the employment of both their own

stakeholders, and their main purpose is toemployees and the employees of the merged

maintain their businesses efficiently and ef-

LPE. Thus, LPE human resources have a

fectively; they are different from commercial

high committed capacity cost and a low man-enterprises, whose main objective is the max-

aged capacity cost.

imization of profit (Eldenburg et al., 2004;
Holzhacker et al., 2015).

2. Effects of Municipal Amalgamations

Next, since this study focuses on resource

In Japan, since 1999 and with a peak inadjustment costs, it is important to under-

2004, many amalgamations have been con-stand the features of LPE management re-ducted among municipalities. As a result, thesources. Among LPEs’ material resources, thenumber of municipalities decreased fromratio of fixed assets to net assets and that of

3,232 organizations in 1999 to 1,719 organiza-

fixed assets to equity capital are both high.
1rate is 0.11% (Local Public Enterprise Yearbook No.

The fixed asset component ratio is 91.6%, thefixed ratio is 146.7%, and the fixed asset turnover

61).

22

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

tions in 2013. Since LPEs are one of the inter-

effects of municipal amalgamations appeared

nal divisions of municipalities, they were also

in the expansion of the financial scale, the re-integrated as part of municipal amalgama-

duction of service costs, and improvements intions. The number of LPEs decreased fromthe quality of service. However, academic

11,712 businesses in 1999 to 8,703 businesses

studies in the field of public economics, public

in 20132.

administration, and public finance argue for

The nationwide increase in municipal

various opinions regarding the effects of mu-

amalgamations occurred for three reasons:nicipal amalgamations, and their evidences

the pressure for efficiency improvements

are mixed (Liner, 1992; Edwards and Xiao,

caused by the long-term downturn of the Jap-

2009; Drew et al., 2017). These studies mainly

anese economy, the influence of the popula-focus on the correlation between municipaltion decline and the expansion of the depopu-

amalgamations and municipal expenditures.

lated area, and the requirement of effective

So far, no previous studies have focused on

and high-quality public services. First, thechanges in cost management due to munici-

long-term downturn of the Japanese economy

pal amalgamations. In other words, thiscaused the deterioration of the financial sta-

study is the first to verify the effects of munic-

tus of municipalities. For this reason, small-

ipal amalgamations from the viewpoint of theand medium-sized municipalities had to

management accounting field.

strengthen their financial basis throughamalgamations; specifically, municipal amal-(3) Prior Research and Development of Hy-

gamations aimed to achieve economies ofpothesesscale. Second, due to the expansion of the de-In recent years, empirical research on cost

populated area, demand for public services

behavior has focused on capacity costs. Inchanged significantly. In other words, in order

other words, researchers are focusing on costto secure profitability, municipalities had tofluctuations, including changes in manage-

provide services to wider areas. Thus, amal-

ment resources (Banker and Byzalov, 2014).

gamations also aimed to achieve economies ofAnderson et al. (2003) clarify that the rela-size. Finally, municipalities were expected totionship between costs and activities is notshare knowledge through amalgamations andproportional or linear, and they call this phe-enhance synergy effects. Moreover, when mu-

nomenon sticky costs. Resource adjustment

nicipal amalgamations were carried out, sub-costs are one of the factors that cause sticky

sidies from the Japanese government in-costs. For example, the costs of human re-creased, which created incentives for stake-source development, such as training costs or

holders in municipalities.

the costs for dismissal compensation, need to

The Japanese government reported the ef-

be adjusted depending on the activity level.

fectiveness of municipal amalgamations in

Similarly, in the case of material resources,

2008 and 2010. These reports stated that themaintenance costs or repair costs for facilities

There are several reasons why the rate of decrease in the number of municipalities due tothe amalgamation differs from the rate of decrease in the number of local public enterprises.

One of the major reasons is that some local public enterprises started their operations after theamalgamation of municipalities.

223

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

or equipment need to be adjusted according tolarge organizations have to get agreement

the increase or decrease in the activity level.

from many stakeholders before making cost

In situations where resource adjustments

management decisions. In other words, re-must be made in accordance with changes insource adjustment costs are greater for large

activities, adjustment costs, as represented byorganizations than they are for small ones. In

agency costs, are generated.

the case of M&A, sticky costs also increase af-

These studies on cost fluctuations mainly

ter the amalgamations, since resource adjust-target commercial companies and exclude

ment costs are increased by amalgamations

public services, such as utilities, since the au-(Jang et al., 2016).

thors argue that public services adopt a differ-Thus, first of all, I focus on the change inent accounting system (Shust and Weiss,organization size. When the organization2014), and that cost behavior analysis models

scale is expanded due to an amalgamation,

only apply to competitive business fields andLPE administrators should have more diffi-

not to public service fields (Weiss, 2010). For

culty adjusting to their management re-this reason, only a few studies focus on public

sources. In the case of merging LPEs, because

organizations. However, these studies insist

the scale of the organization becomes larger

that there is evidence of asymmetric cost be-after the amalgamation, the sticky costs

havior among public organizations (Yasukata

should be stronger after an amalgamation

et al. 2011; Bradbury and Scott, 2014; Cohen

than they are before an amalgamation.

et al., 2014; Holzhacker et al., 2015). Bradbury and Scott (2014) analyze the cost behav-

Hypothesis 1: Sticky costs after amalgama-ior of New Zealand municipalities, Cohen ettion are stronger than before in merged local

al. (2014) focus on Greek municipalities, andpublic enterprises.

Holzhacker et al. (2015) target German hospitals. These studies also find evidence of sticky

The merging LPE should provide more ef-

costs in public organizations, and they argue

fective and efficiency through an improve-that sticky costs originate from the mission ofment in its management resources with the

public interest. In other words, public organi-passage of time after the amalgamation. How-zation administrators are pressured by insti-

ever, amalgamations have the expected effecttutional constraints and have to serve con-in few cases (King et al., 2004). After an amal-

stantly even if doing so causes a reduction in

gamation, the improvement of financial indi-revenue. Thus, sticky costs are strengthened

cators is generally confirmed in the shortamong public organizations (Holzhacker et al.,term, but amalgamations may negatively in-2015). Since LPEs in Japan are also public or-

fluence innovation, and companies cannot ac-

ganizations, my prediction is that sticky costs

quire a competitive advantage in the long

will strongly appear for merged LPEs.

term (Hitt et al., 1991). There is concern that

Furthermore, Sepasi and Hassani (2015)

an amalgamation makes it difficult to makeclarify that sticky costs are stronger for large

long-term adjustments to cost management.

organizations than for smaller organizations,and they argue that organization size affects

Hypothesis H2: Sticky costs increase ascost management. Specifically, managers oftime passes after an amalgamation.
24

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

Next, as management resources are consol-

costs or the number of staff as a proxy for hu-

idated and eliminated by the amalgamations,

man resources (Anderson et al., 2003; Banker

the author needs to consider the impact of re-et al., 2013). One reason for these high sticky

source adjustment costs on cost behavior.

costs is worker protection laws. Namely,

Dalla Via and Perego (2014), and Sepasi andworker protection laws require managers to

Hassani (2015) describe the relationship be-retain human resources even when sales de-tween the scale of the organization and thecrease since they cannot dismiss employeeschange in resource adjustment costs, andeasily in order to protect workers. Therefore,clarify the evidence of stronger sticky costs onhuman resources adjustment costs act to in-larger organizations than on smaller organi-crease sticky costs (Banker et al., 2013). Thus,

zations. One factor in highly sticky costs insticky costs strengthen as the scale of an or-

large organizations is committed capacity cost.

ganization expands, since adjusting to human

The larger scale of the organization creates

resources costs becomes more difficult forless flexibility in adjusting to material re-

managers (Sepasi and Hassani, 2015).

source costs and human resource costs.

In the case of LPEs, worker protection laws

Therefore, when management resources arealso make it difficult for management to dis-greater, the committed capacity cost increases,

miss employees easily. If the LPE administra-and managers have more difficulty in flexibly

tors dismiss employees, then there are still

adjusting to material resources or human re-huge resource adjustment costs, such as ansources costs. In addition, Jang et al. (2016)

increase in compensation costs or the prolon-

focus on the M&A of enterprises and clarify

gation of adjustment by litigation. For thisthat the sticky costs will also increase for en-

reason, amalgamations of LPEs may increase

terprises with a large scale of material re-the committed capacity cost of human re-sources. LPEs should integrate their facilities

sources, so LPE administrators will likely loseand equipment through amalgamations, so

the flexibility of cost adjustment.

the scale of material resources should expand.
Therefore, as material resources increase, re-Hypothesis H4: The influence of the scale ofsource adjustment costs increase, and sticky

human resources may affect cost behavior bycosts are strengthened.

strengthening sticky costs as compared withthose before the amalgamation.

Hypothesis H3: The influence of the scale ofmaterial resources may affect cost behavior(4) Research Methodby strengthening sticky costs as compared

1. Sample Selection

with those before the amalgamation.

To verify these hypotheses, I run a panel
data analysis. The analysis period begins in

Next, I examine the influence on the costfiscal year 1999, when municipal amalgama-

behavior accompanying the adjustment of hu-

tions started, and ends in fiscal year 2013,

man resources. Prior researches confirm thatgiving a time period of fifteen years.

human resources adjustment costs act toAnalytical samples were collected from thestrengthen sticky costs by using the labor"Local Public Enterprise Yearbook" edited by25

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

the Local Public Finance Bureau of the Min-

LPEs’ operating expenses are substituted

istry of Internal Affairs and Communications.

for Cost (hereafter “C” in the models). Addi-

This yearbook lists the financial data for eighttionally, Revenue takes operating revenue

industries (i.e., the water supply, industrial(hereafter “R” in the models) as a proxy for thewater supply, transportation, gas, hospital,

activity amount. Decrease_Dummy (hereaf-

sewerage, marketing, and parking lot busi-

ter “Dec_D” in the models) is a dummy varia-

nesses) for each municipality. The financial

ble that takes the value of 1 when operating

data used for the analysis are classified as per

revenue decreases between the t period andyear, municipality, and service. Additionally,

the previous period, and 0 otherwise. All thedata from each profit and loss statement anddata are natural logarithms (“ln” in the mod-balance sheet were used. Also, operating rev-els).

enue, operating expenses, total assets, and la-Using this model, it can be confirmed thatbor costs were used as proxy indices for activ-

when operating revenue increases by 1%, theity amount, cost, material resources, and hu-

cost changes by the value indicated by β1. Ad-

man resources, respectively.

ditionally, because of the Decrease Dummy,

The collected data represent 17,471 firm-

when operating revenue decreases by 1%, theyears. To control for the effect of outliers, I de-cost decreases by β1 + β2, whereas β2 indi-lete the top and bottom 1% of observations.

cates the value of the sticky or anti-sticky

The final sample data includes data forcosts. Therefore, when there is cost stickiness,

17,049 firm-years. Therefore, the panel dataβ2 will be negative, and when cost stickinessis unbalanced. Looking at the breakdown of

is not present (anti-sticky costs), β2 will be

the sample data, the sample of pre-merger

positive. If the sticky costs are strengthened

LPEs includes 7,888 data points, and 9,161

after the amalgamation, β1>β1+β2 should

data points post-merger.

hold true.
In order to verify hypothesis 2, it is neces-

2. Method of Analysis

sary to capture the changes in cost behavior

Anderson et al. (2003) develop the empiricaldue to the passage of time after amalgama-

research method of cost behavior based on ations. Holzhacker et al. (2015) adopt a time

Cobb-Douglas type cost function. They also

trend dummy to reflect changes over time, soclarify asymmetric cost behavior using their

the same method is used in this analysis.

models. This model has been adopted in many

Model II

subsequent studies (Banker and Byzalov,2014). Therefore, hypothesis 1 of this studylnwill also be examined with this model.

Model I
ln

,

,

=

+

∗ ln

+

∗

∗ ln
,

,

_

,

+

,

,

,

=

+

∗ ln

∗

_

∗

,

∗ ln

,

+
26

,

_
,

,
,

,

∗ ln
∗

,

+

+
,

,

∗

_

+

_

,

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

In this model, time_trend is 1 in the year of

post-amalgamated LPEs respectively. Eachthe amalgamation and increases by 1 in therow includes data on cost (operating ex-

subsequent years. The use of the time trend

penses), revenue (operating revenue), total

can show the change in the degree of sticky

assets, labor costs, and the natural loga-

costs over time. The other variables are therithms of each of these items. The revenue, to-same as in model I.

tal assets, and labor costs include 0 yen as the

Next, in order to verify hypotheses 3 and 4,

minimum value, which means that the sam-total assets are used as a proxy for material

ple includes financial data for the periods ofresources, and labor costs are used as a proxypreparation for start-up and preparation forfor human resources. Therefore, the author

discontinuance. Some studies exclude suchverifies the effect on cost behavior using

data points, but in this study, the author in-

Model III.

cludes them in the analysis3, taking into consideration the influence of survival bias when

Model IIIln,,they are excluded.
=

+

∗

∗ ln

_

,

,

∗ ln

,

Based on the descriptive statistics, there+,

are three notable characteristics of the data
for the whole sample. First is that the operat-,

ing balances of the LPEs are not in deficit on
average, which confirms the soundness of the

+

, ,

+

, ,

∗

LPEs’ financial conditions. Second is that thescale of the total assets is large on average.
LPEs mainly operate in the field of living in-

_

,

∗ ln

,

,

frastructure businesses, such as water supply
and transportation, so they require a large+

scale of facilities. Third, the differences can il,lustrate between LPEs before and after merging sample. After amalgamations, each de-Resources represent total assets divided byscriptive statistic increases.

operating revenue and labor costs divided by

The descriptive statistics as a whole do not

operating revenue, respectively. The otherindicate any serious defect points that would

variables are the same as in model I.

affect the subsequent data analysis.

(5) Analysis Result
1. Descriptive Statistics
Table 1 shows the descriptive statistics. The
first rows are the total sample, the secondrows are the sample of pre-amalgamatedLPEs, and the third rows are the sample of3

For robustness check, similar results were ob-tained when analyzing excluding 0 yen sample.

27

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

Table 1. Descriptive statistics(*Scale: 1,000Yen)

Cost*
2,024,249
Revenue*
2,134,425
Assets*
19,209,685
Labor costs*
653,136
Total
ln C t/C t-1
0.0073ln R t/R t-1
0.0043ln A t/R t
2.1570ln L t/R t-1.6390
Cost*
1,494,557
Revenue*
1,617,380
Assets*13,024,617
BeforeLabor costs*
506,584
amalgaln C t/C t-1
0.0049mationln R t/R t-1
0.0046ln A t/R t
1.9983ln L t/R t-1.5987
Cost*
2,480,336
Revenue*
2,579,622
Assets*
24,535,284
After
Labor costs*
779,323
amalgaln C t/C t-1
0.0094mationln R t/R t-1
0.0041ln A t/R t
2.2940ln L t/R t-1.6748

Standard
Lower
Upper
Minimum
MedianMaximum Number
deviationquartilequartile
4,015,146
896
199,571569,507 1,828,052
49,143,211
4,409,089
0
208,549
596,456 1,921,935
53,791,218
65,935,863
77 2,011,582 4,824,222 13,375,953 1,026,677,522
1,482,8020
32,00588,453
469,751
19,582,768
17,0490.0824-0.4951-0.0265
0.00350.03440.50150.0749-0.5630-0.0221-0.00120.0236
0.55671.2003-4.4576
1.48752.28472.7311
10.46860.8651-9.4928-2.1810-1.7226-0.9029
4.8141
3,380,642
1,677
153,665
333,526 1,087,361
33,444,824
3,863,543
0
175,802377,021 1,166,930
53,791,218
57,061,789
25,770 1,557,399 3,028,554 6,946,847
959,833,266
1,217,538
0
29,38857,420330,520
18,609,940
7,888
0.0832-0.4829-0.03120.00230.03620.49940.0716-0.5331-0.0219-0.00020.02430.55671.0481-1.2580
1.55402.18252.57097.24560.7529-6.7757-2.0658-1.6674-1.11411.37494,440,046
896
301,784
848,920 2,461,973
49,143,211
4,785,358
0
288,278
848,640 2,519,457
47,581,762
72,294,581
77 3,172,107 7,801,138 18,753,095 1,026,677,522
1,667,716
038,454
129,653
652,896
19,582,768
9,161
0.0816-0.4951-0.02270.00430.03280.50150.0777-0.5630-0.0223-0.00190.02280.5522
1.3023-4.4576
1.34062.36962.9307
10.4686
0.9526-9.4928-2.3051-1.7783-0.7692
4.8141

2. The results of analysis

revenue decreases 1%, then costs are de-Mean

In the panel data analysis, three models

creased 0.6788%.

were used for verification: the pooled model,

Thus, costs changes ratio when revenue in-

the fixed effect model, and the random effectcreases are larger than 1 when revenue de-model. Then, the author conducts a Hausman

creases (i.e., anti-sticky costs). Meanwhile, in

test to confirm the result of the most effective

the samples after the amalgamation, β1 ismodel. The results of these analyses using

0.6746 and β1+β2 are 0.3380, which indicatesmodels from I to III are shown in Tables 2 tothe occurrence of sticky costs. Therefore, costs

4, respectively.

changes ratio when revenue increases are

Beginning with the confirmation of thesmaller than 1 when revenue decreases (i.e.,analysis results of model I in Table 2, thesticky costs). These analysis results suggest

Hausman test indicate that the most effectivethat the cost adjustment capabilities de-model before the amalgamation is the randomcreased after the amalgamation, which sup-effect model, while after the amalgamation,

ports hypothesis 1.

the fixed-effect model is most effective. In thesamples before the amalgamation, β1 is
0.5117 and β1+β2 are 0.6788. This resultshows that when revenue increases 1%, thencosts are increased 0.5177%, conversely the28

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

Table 2. The before / after cost behavior re-Table 3. The results of time trend tests using

sults using Model I

Model II

Beforeamalgamation

β00.0058

***

5.50

β1

0.51170.16710.67460.0039β1

0.6019-0.3366

***

49.29

***

β2

-0.0238
-0.91

44.35
***

***

3.90

0.0000***

5.58-12.49Adj.R

0.25150.2711

N

7,882

9,128

DW

2.20552.3959

H-Testp-value

0.68270.0000Model

Random effect

Fixed effect

2

β0

0.02
***

30.33

β2

After
amalgamation

β3-0.0006

**

-2.27

β4

-0.0381

***

-7.82
2

0.2431

Adj.R
N
DW

17,010

H-Testp-value0.0037

Model

Fixed effects

2.4361For β0, β1, β2, β3, and β4, the upper value is thecoefficient estimate and the lower value is thet-statistic, *significant at the 10% level, **significant at the 5% level, ***significant at the
1% level, N=Number of observations, Adj.R2 =Adjusted R2, DW = Durbin-Watson ratio, HTest = Hausman Test.

For β0, β1, and β2, the upper value is the coefficient estimate and the lower value is the tstatistic, *significant at the 10% level, **significant at the 5% level, ***significant at the
1% level, N=Number of observations, Adj.R2 =Adjusted R2, DW = Durbin-Watson ratio, HTest = Hausman Test.

Next, the author verifies whether resource
adjustment costs with expanding manage-

Next, the author confirms the change inment resources due to the amalgamations af-

post-amalgamation cost behavior. The analy-

fect the amalgamated LPEs’ cost behavior us-

sis results are shown in Table 3. Changes ining Model III. The results are shown in Table

sticky costs over time can be confirmed by β44.

and it indicates a negative value of -0.0381.

The author performs a panel data analysis

Thus, sticky costs are strengthened as timeon the samples before and after the amalgam-

passes following amalgamations, supporting

ation, and this analysis shows that the fixed

hypothesis 2.

effect model is supported both before and after the amalgamation.
Regarding hypothesis 3, the influence of total assets is verified in terms of β5. The negative value of -0.0641 before the amalgamation
increased to -0.1328 afterwards. This result

29

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

reveals that the influence of material re-

ISSN 2189-9592(6) Conclusion

sources on sticky costs strengthened after the

In this study, the author examines how theamalgamation, which supports hypothesis 3.

cost behavior of Japanese local public enter-

Lastly, regarding hypothesis 4, the influ-

prises changes before and after municipalence of human resources is indicated by β6.

amalgamations, focusing on the relationshipThe negative value of -0.2253 before the amal-

between amalgamations and resource adjust-gamation decreases to -0.0809 afterwards,

ment costs as a factor in asymmetric cost be-which confirms that the influence of humanhavior.

resources on sticky costs weakens after theThis study finds some interesting results

amalgamation. Therefore, hypothesis 4 is not

through the comparison between pre- andsupported.

post-amalgamation. First, sticky costs are revealed in the sample of post-merging LPEs.

Table 4. The influence of total assets and la-Hence, amalgamations tended to strengthen

bor costs using Model III

sticky costs on average. Second, it is clarified

Beforeamalgamation

β00.02161.26

β10.5180β2

0.0603

***

23.57
1.08

After
amalgamationthat the post-amalgamation sticky cost is af-

0.0590***sources. Third, on the contrary, the influence

0.7214***-0.1566

***

5.51

48.50

β4

0.05500.0331***β5-0.0641***-0.1328***β6-0.2253***-0.0809

***

-2.76

2

Adj.R

N

DW

-7.21
0.22557,776
2.6022author supposes that these results are inmanagement resources.

***

9.88

ens the post-amalgamation cost behavior. The
duced from two aspects; organization size and0.0373

5.22

of human resources adjustment costs weak-

-4.43

***

β3

fected by the adjustment costs of material re--0.0011

-0.29

10.23
-9.92

First, I argue that it is difficult to makequick cost management decisions when thesize of an organization increases due to anamalgamation because of the inefficiency of
the functional organizational structure andthe influence of the specific approval system-4.09
0.33688,722
2.4313

H-Testp-value

0.00000.0000Model

Fixed effect

Fixed effect(i.e., the “Ringi” system) in Japanese organizations. In public organizations, including
LPEs, a functional organizational system isadopted. Then, as the organization scale expands, job divisions are subdivided and become more specialized. The middle-bottom-up

For β0 to β6, the upper value is the coeffi-

type of decision-making is usually adopted incient estimate and the lower value is the t-sta-

Japan rather than top down decision-making

tistic, *significant at the 10% level, **signifi-(Ala and Cordeiro, 1999). For this reason, it iscant at the 5% level, ***significant at the 1%

necessary to form a consensus among depart-

Adj.R2 =ments for cost management decision-making,

Adjusted R2, DW = Durbin-Watson ratio, H-

which means that it takes a long time to make

Test = Hausman Test.

decisions (Martinsons and Davison, 2007).

level, N=Number of observations,30

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

Therefore, coordination of each opinion

flexibly maintain their cost adjustment capa-

among departments becomes more compli-

bilities in the case of human resources. In

cated. In some cases, there is a possibility that

other words, the LPEs managed to cover theiropinions may conflict among departments,

cost adjustment ability in human resources inand, then, agency costs can also arise. As theorder to compensate for the decline in theirresult of amalgamations, the size of an organ-

cost adjustment ability for material resources.

ization also grows; the author conjectures

One of the reasons for the analysis results isthat, for the cost management of LPEs, deci-

the reduction in recruiting regular staff andsion-making slows and flexible resource ad-instead adopting a large number of non-regu-

justment becomes more difficult after amal-

lar staff to restructure the administration 4 .

gamations.

Although dismissal of regular recruitment isSecondly, the author argues that the ad-

restricted, the author supposes that at thejustment costs of management resources duetime of employee retirement, they are con-to municipal amalgamations will have a neg-verting to hire non- regular staff. As the result,ative impact on cost management. As the re-administrators could be decrease the adjust-sult of amalgamations, with the integration ofment costs of human resources and may be

management resources, subsequent resource

able to maintain the flexibility of cost adjust-adjustment becomes more difficult than it is

ment.

before the amalgamation.

In future research, regarding with organi-

Especially, material resources acted tozation size, it is necessary to verify the rela-strengthen sticky costs after an amalgama-tionship between sticky costs and the internaltion. This result may be due to the inability to(in-corporating) effect of the functional organ-

abolish facilities or equipment because LPEs

ization system using empirical method. Re-

cannot discontinue utility service even if it isgarding with management resources, more

inefficient or unprofitable; i.e., the responsi-

detailed analysis according to the characteris-bility to support people’s everyday lives. In

tics of management resources is required toother words, in the case of material resources,

identify factors that affect sticky costs. Fur-municipal amalgamations increase the com-thermore, it is necessary to analyze consider-mitted capacity costs for LPEs’ cost manage-

ing different business environments for eachment.

industry of LPEs. There is a continuing need

Conversely, regarding human resources,

for detailed investigations of and research on

the analysis yielded results which were sur-public organizations’ asymmetric cost behav-

prisingly the opposite of the hypothesis.

ior, especially that of LPEs.

Namely, the human resource influence on the

There is a continuing need for detailed in-sticky costs tends to be weakened after amal-

vestigations of and research on amalgamatedgamation. LPE administrators manage to

LPEs’ asymmetric cost behavior.

4

Ministry of Internal Affairs and Communications,

The number of non-regular employees increased

from 456,000 in 2005 to 599,000 in 2012 according

Japan.

to “The report on temporary and part-time employees of local public officials” (Dec. 27, 2016), by the31

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

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(Received: July 31, 2018)(Accepted: April 15, 2019)33

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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(2008). Statement No. 17. Accounting

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AccountingStandards

Board

Standard for Disclosures about Segments[FASB]. (1976). Statement of Financial Ac-of an Enterprise and Related Information.
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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

tariat Documents, Material of (16th) New

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

Publisher: JFMRA
May 2019