Abstract
Prior studies have indicated the problem of ignoring the impact of environmental considerations when undertaking ratio analysis. This paper shows how the intercorporate ownership structure of Japan can influence financial ratios. It also presents two adjustment procedures to increase the comparability between U.S. and Japanese financial statements. The treasury stock method has its roots in Western consolidation principles, but is difficult to calculate for the typical Japanese Keiretsu. The preference share method is based on the stable shareholding structure of Japanese corporate ownership and is relatively easier to implement.
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