Auditing and Weak Bonding Function in Relation to the Agents of Zaibatsu (Large, Family-Owned Industrial Conglomerates) in Japan during 1930s

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DOI: 10.4236/ajibm.2014.46034    2,593 Downloads   3,652 Views  
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ABSTRACT


This paper has been inspired by the paper issued by Evans, and the title of which is “Auditing and Audit Firms in Germany before 1931” in 2003 on Accounting Historians Journal [1]. Although some academics in the field of international accounting refer to accounting events during 1930s in some specific nations in the world as the main subject in their research, it seems to be rare to make allusion to events surrounding external statutory audit by professionals (ESAP, hereafter) in the world during 1930s, the decade characterized as the inter-war period, collectively. Under such a situation Evans Lisa tried to shed light on the comparatively slow development of the statutory audit in Germany, examine the different attitudes to the legal and organizational forms of audit firms, and to analyze the development of German auditing and audit firms prior to their statutory regulation in 1931. Evans’ work, however, has the other aspect of developing the critique of agency theory assumptions in historical contexts. In this aspect, this paper shall rely on the agency theory as the framework of searching the reasons of Japan’s specialty in relation to introducing the external statutory audit by professionals during the decade when EVANS referred to, especially focusing on the monitoring and bonding mechanism of ZAIBATSU. In literature, many papers on agency theories focus on monitoring and the way of incentives by principals. In this respect, the development of German ESAP justifies EVANS’ approach. On the contrary, in reaching the profound reasons that underlie the behaviors of related parties in relation to introducing ESAP, it’s important to pay attention to the conducts of managements that are agents, especially their bonding manner. According to Jensen and Mecling, there is no difference that actually makes the monitoring expenditures and also it will pay the owner-manager to engage in bonding activities and to write contracts which allow monitoring as long as the marginal benefits of each are greater than their marginal cost. If so, generally we can say that the balance of monitoring and bonding might be beneficial to both principals and agents. And also we can expect the situation in which too strong monitoring by the principals might lesson the bonding efforts by the agents. In this paper, I would like to deepen the understanding of the roles and places of managements of ZAIBATSU during 1930s in addition to the situation of Japanese modern big companies, especially those of which occupied the status of followers of ZAIBATSU.


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Shiobara, I. (2014) Auditing and Weak Bonding Function in Relation to the Agents of Zaibatsu (Large, Family-Owned Industrial Conglomerates) in Japan during 1930s. American Journal of Industrial and Business Management, 4, 267-273. doi: 10.4236/ajibm.2014.46034.

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