Diffusion and Penetration of Fair Value Accounting

In Japan’s postwar economic development, bank financing played an important role in supporting corporate activities, and as a result, direct equity financing and stock market development lagged behind that of Western countries such as the U.S. This tendency was also reflected in the development of accounting standards in Japan. Japan has traditionally emphasized historical cost accounting and realized profit for both the balance sheet and the income statement. However, as more emphasis is placed on the current market value of financial instruments traded in financial markets, the recognition of unrealized gains (holding gains) becomes important to users of accounting information. As a result, Japanese accounting standard setters have actively adopted mark-to-market accounting, which is aimed at active financial markets and stock trading. This chapter considers this movement as a case of performative financialization. Although the performative force of financialization has been strong in Japan, there have been some counterperformative actions. First, in terms of accounting for strategic investment, while Japanese interested parties have accepted mark-to-market accounting and the recognition of gains and losses in other comprehensive income, they have strongly supported the inclusion of dividends received from the investment in net income because of the traditional emphasis on dividend income from cross-shareholding practices. Second, because Japanese actors have little familiarity with the term “fair value” accounting—widely used in Europe and the United States—Japanese standard setters have stuck to the use of the term “market/current value,” which could be interpreted as counterperformative to the assumption of financialization that market prices can be fair.