indicating that shareholders and potential investors were better informed. However, this only applied to good news disclosures. Whenn there is bad news, the level of CG makes no difference – and efforts to encourage better CG have not corrected Japanese managers’ reluctance to disclose negative information. Timely disclosure of bad news is more important where the firm faces greater risks of litigation for non-disclosure. In Japan, there is a relatively low risk of litigation around the failure to disclose pertinent information, and managers have the expectation of a job for life. As a result, they have little incentive to build a reputation for credible and timely disclosures. Incentives to do so have grown as foreign investors have sought greater transparency for companies in which they invest, but our results show it is still a major issue. WHAT HAPPENS NEXT? While there have been attempts to revise and reinforce guidance on governance in Japan, it has not been successful in producing the timely release of bad news alongside the good. There have been further changes to Japanese institutional arrangements since the conclusion of our period of study. In 2014, Japan’s Stewardship Code was introduced, which aimed to increase the fiduciary responsibilities of institutional investors. Firms were also expected to have at least two independent directors under the TSE’s CG Code, effective from 2015. Additionally, the JPX-Nikkei 400 index was launched in 2014 for the top 400 companies meeting ‘global investment standards’, which include CG and disclosure practices. Membership is perceived as prestigious, and firms may look to improve their CG and disclosure policies to increase their chances of inclusion. The requirement to make timely disclosures under stock market regulations was reinforced in 2018 by the introduction of fair disclosure rules, aimed at preventing selective disclosure to third parties. Following all of these changes, in 2019, a TSE survey showed 99.3% of firms had independent directors, and 33.6% of boards comprise a third or more independent directors. Incentive renumeration for directors – linked to long-term earnings performance – is more frequently used, and yet there are doubts there have been real changes in board culture and practices. Minority shareholders are also becoming more active in taking a stand against firms engaged in corporate wrongdoing, such as filing individual lawsuits against Toshiba. These developments show a continued interest in CG, and yet our own results suggest earlier efforts to improve disclosure practices have not been entirely successful. Firms with better CG –with more independent directors, more influence from foreign investment – are more transparent, but only when it comes to good news. Time will tell whether the more recent changes have a greater effect, but there is a clear need to pay even greater attention to guidelines targeting the earlier disclosure of bad news. FIFTY FOUR DEGREES | 31 Dr Wendy Beekes is a Senior Lecturer in the Department of Accounting and Finance. Her core research interests encompass corporate governance and the link to disclosures and accounting quality. The article Corporate Governance and Transparency in Japan is authored by Professor Hiroyuki Aman, of Kwansei Gakuin University, Japan; Dr Wendy Beekes, of Lancaster University Management School; and Emeritus Professor Philip Brown, of the University of Western Australia. It is published in The International Journal of Accounting. w.beekes@lancaster.ac.uk
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