Issue Information ‐ TOC

Date01 May 2016
Published date01 May 2016
VOLUME 27, NUMBER 4 May/June 2016
The Journal of
Letter From the Editor
James B. Edwards
Analysis of Simplification of Accounting Initiative for Inventory and Update of Other
Simplification Proposals
James Penner, Jerry Kreuze, and Sheldon Langsam
This article examines Accounting Standards Update 2015-11, Simplifying the Measurement of
Inventory. Through the accounting simplification initiative, the Financial Accounting Standards
Board is reviewing areas of U.S. generally accepted accounting principles (GAAP) that can be
simplified while still maintaining high-quality accounting standards. Under this new standard,
companies will be required to value inventory using the lower of cost or net realizable value.
Companies using the last-in, first-out (LIFO) and retail inventory methods will be scoped out
of applying the new standard.
Preserving and Exercising Financial Flexibility in the Global Financial Crisis
Period: The Japanese Example
Shigeo Takami
This article examines whether Japanese firms replicate the DeAngelo and DeAngelo (D&D)
model, which assumes that firms achieve financial flexibility by increasing their debt capacity
or paying out large dividends and exercise it when abnormal cash shortfalls occur. The article
analyzes frequency distributions, means, and medians across three net cash outlay states
(extreme deficits, deficits, and surplus) using 10-year panel data on 1,555 Japanese firms. It
also conducts Tobit regression analyses based on the dynamic features of financial flexibility
postulated by D&D. The results reveal that Japanese public firms did not effectively utilize
financial flexibility to raise external funds in times of financial need, particularly during the
global financial crisis sparked by the Lehman Brothers collapse in 2008. This article therefore
concludes that the D&D model does not fit the data. Further, the results imply that although
Japanese public firms may have virtually no debt, their motive is not to achieve financial flex-
ibility, but to maintain bank relationships through cross shareholding or the main bank system.
This is the first study to directly test the D&D model, showing that it cannot be generalized,
particular ly in the case of Japan, where the relationships between firms and banks are strong.

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