Japan is a distinctive country in the orient with unique characteristics, particularly in politics and economy. It represents a blend of western practices and traditional nationalism. The era from 1890 to 1940 marked a pivotal period in Japan’s history as it followed the Meiji restoration. This phase witnessed Japan’s transformation from a feudal society into a capitalist one, commonly known as modernization. Despite embracing numerous western practices, traditional norms continued to wield considerable influence in Japan.
This report explores the influence of Japanese cultural factors from 1890 to 1940 on the disclosure of financial information. The “Meiji Restoration” initiated by the Japanese government in 1868 aimed at modernizing and westernizing the country, leading to revisions in political and economic conventions, including the disclosure of financial information. Throughout this period, these practices were continually improved.
Before the Meiji period, Japan’s accounting system was influenced by China but modified for Japan’s requirements. The Meiji period (1868-1912) witnessed a strong emphasis on rapid modernization in accounting. Moreover, American accounting standards and the practice of double entry accounting were translated into Japanese and became widely adopted by Japanese businesses. Although single entry accounting still persisted during this time, it is undeniable that double entry accounting provided greater transparency and information disclosure to the general public.
From 1890 to 1940, Japan underwent a transition from political instability to stability. This led to the establishment of a modern political system after adopting the Constitution of 1889. As a result, Japan became a capitalist country based on legal principles. At the same time, political parties experienced rapid growth and held considerable power over the government. These parties comprised primarily individuals with backgrounds in business, politics, and military who played an essential role in implementing reforms while also preserving traditional practices.
Newly established businesses, represented in the government, called for profits and growth. As a result, reforms in accounting were partially influenced by this demand. During this time, various modern institutions were formed, with the Ministry of Finance serving as the primary policy office responsible for financial matters. By 1898, the ministry had already established its current functions and structure, which included managing budgets, taxes, banking, insurance stocks and bonds, and international monetary affairs.
Japan’s institutions were instrumental in the country’s transition into a modern economy. Despite becoming a democratic nation after the Meiji restoration, government intervention remained prominent, setting it apart from other capitalist countries and greatly influencing its economic development. Consequently, Japan’s early 20th century economy relied on finding a delicate equilibrium between market reliance and government intervention. In contrast to Western economies, Japan operated with distinct market relationships.
Japan’s modernization was accelerated by two factors: the recruitment of over 3,000 foreign experts in various fields including English teaching, science, engineering, and military; and the sending of numerous Japanese students to Europe and America as per the fifth article of the Charter Oath of 1868, which emphasized seeking knowledge globally to reinforce Imperial rule. Throughout this modernization process, the Meiji government closely supervised and generously funded it, reinforcing the influence of powerful zaibatsu corporations like Mitsui and Mitsubishi.
The zaibatsu and government of Japan collaborated to steer the nation and embrace Western technology. As a result, Japan gradually gained control over the Asian market for manufactured goods, beginning with textiles. The economy adopted a mercantilist approach, prioritizing the importation of raw materials and exportation of finished products due to Japan’s limited access to raw material resources.
Japan, the first industrialized nation in Asia after the Tokugawa-Meiji transition, experienced a transformation. While domestic commerce and limited foreign trade met material culture demands during the Tokugawa period, significant modernization was required during the Meiji era.
From the start, the Meiji leaders in Japan embraced the idea of a market economy and adopted British and North American models of free enterprise capitalism. The private sector, which had many ambitious entrepreneurs, eagerly accepted these changes. Economic reforms included the introduction of a modern currency called the yen, as well as the establishment of banks, commercial and tax laws, stock exchanges, and a communications network. It took some time, but by the 1890s, Japan had created a modern institutional framework that supported an advanced capitalist economy.
By this time, the government had mostly given up direct control of the modernization process due to budget constraints. The former daimyo, whose pensions were paid in a lump sum, profited greatly from their investments in emerging industries. The individuals who had informally participated in foreign trade before the Meiji Restoration also thrived. However, old bakufu-serving firms that stuck to their traditional methods failed in the new business atmosphere. Initially, the government played a role in economic modernization by establishing several “model factories” to assist in the transition to the modern era.
During the Meiji period, Japan experienced rapid expansion in its industrial economy for about twenty years. This growth was made possible by the adoption of advanced Western technology and significant private investments. Additionally, Japan’s industrial strength was further enhanced through wars and careful economic planning. As a result, Japan emerged as a major industrial nation after World War I.
The Meiji restoration aimed to establish a market-oriented economy. However, the significant role of government intervention cannot be overlooked. The government provided support for the establishment of modern institutions and sent students to Western countries to study economics. It was during this period that Japan started adopting Western accounting methods.
Before the 19th century, accounting disclosure for foreign investment was not in high demand and only came about after foreign investors suffered losses. In 1909, the government recognized accounting as a profession and professional accountants emerged in 1890. By 1927, there were approximately 300 accountants, leading to the establishment of legislation regarding their recognition. In 1934, the Ministry of Commerce codified rules for financial statements and issued manuals for munitions factories’ statements during the early stages of World War II. Foreign trade
During the Meiji period (1868-1912), Japan witnessed a significant rise in imports and exports. From 1890 to 1940, Japan emerged as a prominent exporter and established strong links with Western countries. As communication between Japan and other nations expanded, it became crucial to record these transactions accurately in a format understandable by all parties involved. The Western accounting method became the preferred option since Japan’s trading partners mostly employed this approach. Consequently, there was an increased demand for financial information disclosure.
In terms of foreign investment, following the Meiji restoration in 1868, the Japanese government and emerging companies introduced new technologies and management practices from abroad. This enabled Japanese firms to participate in foreign markets and attract capital. Additionally, from the Sino-Japanese war of 1894-1895 until the start of World War I, Japanese companies collaborated with American and European counterparts, particularly in manufacturing and the chemical industry. This development sparked a need for modernization in accounting and information disclosure practices within these companies and to the public.
The commercial code in Japan establishes the structure and functioning of commercial entities and outlines the characteristics of commercial relationships. Compliance with this code mandates that corporate directors compile financial statements for statutory auditors. During Japan’s westernization process, German Commercial Law, particularly the German Mode of Accounting, had a significant influence. To create a draft for a commercial code aligned with the German code, the Japanese government commissioned Hermann Roesler, a German scholar. In 1899, Japan published its initial rendition of a commercial code.
However, the financial statement rule lacks clarity and detail. In particular, the asset valuation remains unclear, enabling firms to exert more control over their profits and limit their disclosure. This has led to more than 20 revisions of the commercial code. The objective of the commercial code is to safeguard creditors and ensure companies calculate income availability for dividend distribution in a conservative manner.
For example, companies must disclose the asset value recorded at the acquisition date without any provisions, such as an increase in asset value, which also adds to the shareholders’ profit. The Ministry is accountable for enforcing the commercial code, which mandates all joint-stock companies to create a non-consolidated annual financial statement following commercial code regulations. Additionally, the commercial code stipulates that the financial statement must be presented for approval at the general meeting.
These statements revolve around profit determination disclosure and dividend payment availability. The Commercial Code plays a significant role in disclosing financial information. As the law is enacted and implemented, companies release their financial information to the public, leading to the establishment of proper operations and management. During the period from 1890 to 1940, industries experienced significant growth. While some outdated industries disappeared, numerous new industries emerged.
During this period, a comprehensive industry system was gradually established. Modern enterprises played a crucial role, necessitating a practical accounting method that adheres to international practices. Additionally, the capital market underwent improvements. Listed companies were required to disclose their financial information to stakeholders, with a much larger extent of disclosure compared to the past. The development of the industry and capital market has somewhat enhanced the efficiency of financial information disclosure.
Following the Meiji Restoration, the Japanese financial system underwent a division into two main components: financial intermediaries and the capital market. Financial intermediaries comprised various banking institutions, while the capital market primarily involved the issuance of shares and bonds. In 1927, Japan was also hit hard by a global economic crisis, resulting in significant devastation. During this time, 37 banks experienced bankruptcy, with only a few being rescued through government relief efforts.
The crisis prompted society to examine the causes, and one major factor identified was insufficient disclosure of financial information. As a result, government institutions took on the responsibility of ensuring the disclosure of financial information. [6] In conclusion, studying the historical accounting changes in various countries proves valuable in understanding the impact of culture and politics on accounting systems. A suitable framework must be established to investigate the influence of culture and politics on accounting within individual countries and the process of accounting change.
The paper suggests a framework, which draws upon Gray’s (1988) frameworks, to aid in the examination of culture and politics in relation to accounting change and development within a specific country. It is anticipated that culture, social context, and political processes will impact all stages of the change.
Reference
- Bas van Leeuwen, (2004), Wage differentials and economic growth in India, Indonesia, and Japan, 1800-2000,
- Miji reform (2007), ; http://zhidao. baidu. com/question/19615184. html;
- Belkaoui, A. R. “Cultural Determinism and Professional Self-regulation in Accounting: A Comparative Ranking”, Vol 3, 1989, pp 93-101
- Hofstede,G, “The Confucius Connection: From Cultural Roots to Economic Growth”, USA, Sage publication, 1984
- Mark Poe,Kay Shimizu and Jeannie Simpson, “Revising the Japanese Commercial Code”, USA ,Stanford Journal of East Asian Affairs,2002 Volume 2
- Lederach, John Paul. 1995. Preparing for Peace. Conflict Transformation Across Cultures. Syracuse, NY: Syracuse University Press, pp. 94.
