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Ratio analysis comparability between Chinese and Japanese firms

Ratio analysis comparability between Chinese and Japanese firms Purpose – Firms in different countries operate in different business environments and prepare financial statements following, by necessity, their own countries' accounting standards. Benchmarks for assessing financial ratios of firms in different countries are likely to be different. In conducting financial ratio analyses, each country's unique cultural, business, financial, and regulatory characteristics have to be taken into consideration, for these external factors may exert significant effects on measurements of financial data. This study aims to investigate challenges in comparing financial ratios between Japanese firms and Chinese firms. Design/methodology/approach – This study compares ten major financial ratios of 75 Chinese firms with financial ratios of 75 matched sample Japanese firms to determine if a common benchmark for each of the financial ratios can be applied to firms in both countries. Findings – The results show significant differences in liquidity, solvency, and activity ratios between firms from these two countries. Further examination of differences in accounting standards, economic, and institutional environments between these two countries suggests that these external factors have significant effects on financial ratios and may have contributed to the observed differences. Originality/value – This study is among the first to investigate the comparability of ratios between Japanese firms and Chinese firms to uncover potential challenges and warn investors of such challenges. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Ratio analysis comparability between Chinese and Japanese firms

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1558-7894
DOI
10.1108/15587891311319468
Publisher site
See Article on Publisher Site

Abstract

Purpose – Firms in different countries operate in different business environments and prepare financial statements following, by necessity, their own countries' accounting standards. Benchmarks for assessing financial ratios of firms in different countries are likely to be different. In conducting financial ratio analyses, each country's unique cultural, business, financial, and regulatory characteristics have to be taken into consideration, for these external factors may exert significant effects on measurements of financial data. This study aims to investigate challenges in comparing financial ratios between Japanese firms and Chinese firms. Design/methodology/approach – This study compares ten major financial ratios of 75 Chinese firms with financial ratios of 75 matched sample Japanese firms to determine if a common benchmark for each of the financial ratios can be applied to firms in both countries. Findings – The results show significant differences in liquidity, solvency, and activity ratios between firms from these two countries. Further examination of differences in accounting standards, economic, and institutional environments between these two countries suggests that these external factors have significant effects on financial ratios and may have contributed to the observed differences. Originality/value – This study is among the first to investigate the comparability of ratios between Japanese firms and Chinese firms to uncover potential challenges and warn investors of such challenges.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Apr 26, 2013

Keywords: Ratio analysis; Japan; China; Benchmarking; Management ratios; Finance and accounting

References