Issue Information ‐ TOC

• Date: 01 May 2016
• Published date: 01 May 2016
• DOI: http://doi.org/10.1002/jcaf.22170

VOLUME 27, NUMBER 4 • May/June 2016

The Journal of

Letter From the Editor

James B. Edwards

Features

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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