Matching Expenses with Revenues Around the World

  • Tetsuyuki KagayaEmail author
Part of the Advances in Japanese Business and Economics book series (AJBE, volume 6)


The purpose of this research is to examine changes in the relation between revenue and expense over the last 16 years around the world. I show that the correlation between revenue and expense has declined around the world, especially in English Speaking countries. Meanwhile, it has not necessarily decreased in the Far East countries and Western Europe countries. In addition, I investigate the relation between earnings smoothness and matching, based on the analysis of the country-year data, and analyzed the relation between the current accuruals and current and next cash flows from operations in each country. These results suggest that accrual process, supported by matching and accruals, promotes the earnings smoothing and signaling the future cash flows in the Far East countries, especially in Japan. These findings indicate that there are major differences in the roles of matching around the world.


Accounting attributes Accruals International comparison Matching concept Path dependence 


  1. Ball, R., Kothari, S. P., & Robin, A. (2000). The effect of international institutional factors on properties of accounting earnings. Journal of Accounting and Economics, 29, 1–51.CrossRefGoogle Scholar
  2. Ball, R., Robin, A., & Wu, J. S. (2003). Incentive versus standards: properties of accounting income in four East Asian countries. Journal of Accounting and Economics, 39, 235–270.CrossRefGoogle Scholar
  3. Barth, M. E., Cram, D., & Nelson, K. (2001). Accruals and the prediction of future cash flows. The Accounting Review, 76(1), 27–58.CrossRefGoogle Scholar
  4. Basu, S. (1997). The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting and Economics, 24(1), 3–37.CrossRefGoogle Scholar
  5. Beaver, W. H., & Demski, J. S. (1979). The nature of income measurement. The Accounting Review, 54(1), 38–46.Google Scholar
  6. Bromwich, M., Macve, R., & Sunder, S. (2010). Hicksian income in the conceptual framework. Working Paper, London School of Economics, pp. 1–40.Google Scholar
  7. Brown, S., Lo, K., & Lys, T. (1999). Use of R2 in accounting research: Measuring changes in value relevance over the last four decades. Journal of Accounting and Economics, 28(2), 83–115.CrossRefGoogle Scholar
  8. Bushman, R., & Piotroski, J. (2006). Financial reporting incentives for conservatism accounting: The influence of legal and political institutions. Journal of Accounting and Economics, 42(1–2), 107–148.CrossRefGoogle Scholar
  9. Christensen, H. B., Hail, L., & Leuz, C. (2012). Mandatory IFRS reporting and changes in enforcement. Working Paper, University of Chicago.Google Scholar
  10. Collins, D., Maydew, E., & Weiss, I. (1997). Changes in the value-relevance of earnings and book values over past forty years. Journal of Accounting and Economics, 24(1), 39–67.CrossRefGoogle Scholar
  11. Dechow, P. M. (1994). Accounting earnings and cash flows as measures of firm performance. The role of accounting accruals. Journal of Accounting and Economics, 18(1), 3–42.CrossRefGoogle Scholar
  12. Dichev, I. D., & Tang, V. W. (2008). Matching and the changing properties of accounting earnings over the last 40 years. The Accounting Review, 83(6), 1425–1460.CrossRefGoogle Scholar
  13. Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2008). The law and economics of self-dealing. Journal of Financial Economics, 88, 430–465.CrossRefGoogle Scholar
  14. Francis, J., Lafond, R., Olsson, P. M., & Schipper, K. (2004). Cost of equity and earnings attributes. The Accounting Review, 79(4), 967–1010.CrossRefGoogle Scholar
  15. Hail, L., Leuz, C., & Wysocki, P. D. (2010). Global accounting convergence and the potential adoption of IFRS by the U.S. (part. 1) conceptual underpinnings and economic analysis. Accounting Horizon, 24(3), 355–394.CrossRefGoogle Scholar
  16. Hicks, J. R. (1946). Value and capital: An inquiry into some fundamental principles of economic theory. Oxford: Clarendon.Google Scholar
  17. Itami, H. (2008). Organization accumulates knowledge, market utilizes. Hitotsubashi Business Review, 55(4), 8–21.Google Scholar
  18. Jackson, G., & Miyajima, H. (2007). Varieties of takeover markets: Comparing mergers and acquisitions in Japan with Europe and the USA., RIETI Discussion Paper.Google Scholar
  19. Lev, B., Li, S., & Sougiannis, T. (2009). The usefulness of accounting estimates for predicting cash flows and earnings. Review of Accounting Studies, 15(4), 779–807.CrossRefGoogle Scholar
  20. Lev, B., & Zarowin, P. (1999). The boundaries of financial reporting and how to extend them. Journal of Accounting Research, 37(2), 353–388.CrossRefGoogle Scholar
  21. Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69, 505–527.CrossRefGoogle Scholar
  22. Paton, W. A., & Littleton, A. C. (1940). An introduction to corporate accounting standards. American Accounting Association, Chicago.Google Scholar
  23. Su, S. Y. S. (2005). To match or not to match? The British Accounting Review, 37, 1–21.CrossRefGoogle Scholar
  24. Yoder, T. R. (2007). The incremental predictive ability of accrual models with respect to future cash flows. Working Paper, University of Nebraska at Omaha.Google Scholar

Copyright information

© Springer Japan 2014

Authors and Affiliations

  1. 1.Graduate School of Commerce and ManagementHitotsubashi UniversityKunitachiJapan

Personalised recommendations