Emerald Management Review:
The rise of deferred tax assets in Japan: the role of deferred tax accounting in the Japanese banking crisis

Abstract:

Purpose - To explain how Japanese regulators manipulated accounting rules in association with banks. Design/approach/methodology - Explains the introduction of deferred tax accounting rapidly in 1998, and its progress until the failure of Resona in 2003. Adds a bank-level cross-sectional analysis of deferred tax accounting, looking at the forecast earnings on which the provisions were based and the actual earnings, by regression methods, from 1999 to 2003, for 86 major banks. Includes evidence of regulatory capital arbitrage incentives for managers.

Findings - Finds that the Japanese regulations are couched in standard terms conforming to the International Financial Reporting Standards, but were implemented so as to offer a 'soft landing' to weaker banks that otherwise would fail under the burden of bad debt,, by means of regulatory forbearance.

Research limitations/implications - Reports a case study of the Japanese banking system that may be generalized when national governments face a banking credit crunch.

Originality/value - Highly topical for those contemplating an international approach to bank regulatory reform.

Keywords:

Article Type:

Research paper

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