![Sample our Humanities journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5939/TOC-Subject-Sample-2021-Humanities.jpg"})
ABSTRACT
This study presents an additional important case clarifying the role of accounting in reconciling the dilemma faced by Japanese special companies in choosing between pursuing profits as a private entity and responding to the national interest under the conditions of the Second World War. The focus is placed on the transformations that occurred in the accounting practices adopted by the South Seas Development Company (SSDC), a special company heavily committed to Japan’s territory management in Micronesia during the inter-war period. The study demonstrates that the SSDC’s management initially used accounting information, such as segment profitability, to make economic decisions for the purpose of selecting its business centres, in response to the ‘South Construction Project’ requested by the Japanese army. However, subsequent to the outbreak of the Pacific War in 1941, the nature of accounting information used was transformed in order for the SSDC to be able to manipulate accounting income to secure an acceptable level of dividends to respond to the demands of shareholders.
Acknowledgements
An earlier version of this paper was presented at the Accounting History International Emerging Scholars’ Colloquium, Eighth Accounting History International Conference in Ballarat, August 2015 and I am grateful to conference participants for their comments. I would like to express sincere gratitude to the two anonymous referees for their suggestions and constructive comments. Also, I would like to express sincere gratitude to Professor Cheryl McWatters, Editor of Accounting History Review, for her suggestions, constructive comments and consideration to make the paper publishable. I could not have published this study without her dedicated support. In addition, I wish to express sincere gratitude to Professor Masayoshi Noguchi (Tokyo Metropolitan University) and Professor Yasuhiro Shimizu (Kobe University) for their encouragement and dedicated support.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 Although Japan governed the territory of the South Sea Islands, it was not a colonial territory but a mandated territory granted by the League of Nations.
2 Micronesia is indicated in the map of as the area including the Caroline, Mariana and Marshall islands. Micronesia consisted of 623 islands, including the main islands of Saipan, Tinian, Rota, Palau, Pohnpei and Jaluit (Nanyocho Citation1932, 3).
3 After the Ministry of Colonial Affairs was abolished in 1942, the SSDC was placed under the supervision of the Ministry of Home Affairs.
4 The Jaluit Company was established as a chartered company in 1887 and primarily engaged in business operations related to copra, mineral phosphate (Nauru Island), shipping and commerce (Abe Citation1985a, 73–74; Takaoka Citation1954, 207, 212, 214–216).
5 The German South Seas Phosphate Company was established in 1908 and engaged in production of mineral phosphate on Angaur Island under the protection of the German government (Abe Citation1985a, 76; Takaoka Citation1954, 392).
6 The West Caroline Company was established by the Jaluit Company in 1912 and primarily engaged in business operations related to agriculture, especially palm cultivation, including trade in copra (Takaoka Citation1954, 224).
7 The OCC was established by a special act promulgated in 1908 with the aim of settling Japanese farmers in Korea in order to solve problems such as overpopulation and food supply shortages in Japan (Matsunaga Citation2000, 37; Noguchi and Kanamori Citation2010, 276). Initially, the company's activities were limited to Korea, but in 1917 when the special act establishing the company was revised, the area of the company's operations expanded to include Manchuria, Mongolia, the northern part of China and Micronesia (Noguchi and Kanamori Citation2010, 279).
8 Haruji Matsue was born in Aizu Wakamatsu, Fukushima in 1876. He studied abroad at Louisiana University, USA, in 1903 after joining Nihon Sugar Refining Ltd. After returning to Japan, he became the first to succeed in the manufacturing of cube sugar in Japan in 1907. He then moved to Taiwan in 1910 and took charge as managing director of the sugar manufacturing business of the Niitaka Sugar Production Company. Finally, he resigned from the Niitaka Company in 1920 and moved to the SSDC in 1921 (Takagi Citation1998, 54; Takemura Citation1984, 145–146).
9 The process of sugar refining started with sugar cane juice being squeezed out from sugar cane with a compressor. The sugar cane juice was then filtrated and condensed to produce a mixture of crystalline sugar and molasses. Finally, the mixture of crystalline sugar and molasses was separated. The crystalline sugar was dried and packaged, while alcohol was extracted from the remaining molasses, which was therefore a byproduct of the sugar refining process (Nanyo Kohatsu Citation1940, 16–17, 24).
10 The dividend rate was an annual rate of payment relative to the paid-up capital.
11 The commemorative dividend was implemented in the first period of 1937 and the increase of capital in return was carried out in the second period of 1937 (South Seas Development Company, Business Reports no. 25, 15; no. 26, 3–4).
12 In this situation, the SSDC recruited immigrants from Korea (Imaizumi Citation2004, 314–315).
13 Internal historical material of the SSDC explains the reasons as ‘Because this construction work is urgent in view of the importance for the entire nation, the Rota sugar refinery needed to be closed, and 1,500 skilled workers who belong there’ needed to be supplied to secure the necessary workforce (JACAR, B06050173200). The operation of a synthetic sake factory, however, was started at the Rota factory site from October 1940 (South Seas Development Company, Business Report no. 33, 5; Takemura Citation1984, 91). This production of synthetic sake was made in anticipation of an increased demand for sake in Japan and the production was executed utilising some of the equipment already present in the Rota sugar refinery (CIA, Citation0015-03565-Citation100).
14 Before 1937, the daily production capacity in Saipan was 1200 tons (Takemura Citation1984, 106).
15 The SSDC's management in fact attempted to increase the production of mineral phosphate by setting the target at 170,000 tons per year in 1939 (CIA, Citation0015-03564-Citation100), although it was never achieved.
16 While the SSDC recorded a mining cost of 53,704 yen and a shipping cost of 77,022 yen, only the amount of 79,334 yen was recorded as the predetermined sale price for Bohol Island (CIA, Citation0015-03567-Citation100).
17 Actual results for income and expenses in 1940 for the Bohol Island operation are not available. It is possible that production of mineral phosphate on Bohol Island was not carried out in 1940 as a result of the closure decision made in February 1940 (CIA, Citation0015-03567-Citation100). It is also possible that income and expenses of the Bohol Island operation were dealt with in the construction expenses account (JACAR, B06050184400). The Spratly Islands operation recorded a net income of just 843 yen in 1939 (JACAR, B06050172700).
18 The SSDC had acquired mining rights for mineral phosphate in Tinian in 1937 (Takemura Citation1984, 89), but operated the site only in 1942.
19 Although the SSDC's management made the decision to close the Peleiu Island operation in 1941, it continued to produce mineral phosphate there in the first half of 1942 (CIA, Citation0015-03569-Citation100; JACAR, B06050197300).
20 ‘Pohnpei’ is indicated as ‘PONAPE’ in .
21 Anhydrous alcohol (molasses) was produced through the re-distillation of normal alcohol produced by the fermentation and distillation of molasses. Anhydrous alcohol (sugar cane) was, alternatively, produced through the fermentation and distillation of sugarcane juice produced before the separation of crystalline sugar (Osaka Asahi Newspaper, 22 August 1939 to 1 September 1939). While the SSDC was able to convert relatively easily the equipment in Tinian for the production of normal alcohol to the production of anhydrous alcohol, it was still required to make additional large investments, such as for the compressor and distillation apparatus, in the case of Pohnpei, even though some of the equipment already present in the cassava starch factory was utilised (JACAR, B06050161900).
22 The operating expenses are not included in the cases of the Saipan and Tinian alcohol factories. They were included in the production costs of the main sugar refineries in both cases, and the portion borne by the alcohol business was insignificant (CIA, Citation0015-03572-Citation100). The production of anhydrous alcohol was carried out independently in the factory at Pohnpei.
23 According to Saeki (Citation1992, 240, 244), investments for these areas by the SSDC were supported by the Japanese Navy. The SSDC had also called up part of the unpaid capital in the amounts of 1,950,000 yen in 1935 and 3,900,000 yen in the first half year of 1937 (South Seas Development Company, Business Reports nos. 21–22; no. 25, 3).
24 The OCC sold a portion of the shares of the SSDC in 1933 (JACAR, B06050151300). Therefore, the shareholding of the OCC declined to 49.9 per cent in 1933 (see ).
25 The author appreciates the suggestion of one of the reviewers to investigate further the SSDC's relation with the OCC. Originally, I had considered that the SSDC's management would have attempted to maintain the levels of dividend payments, and thereby its stock prices, through accounting manipulations, for the purpose of sustaining its own business. However, following the referee's suggestion, I revised the analysis to consider that the management of the SSDC was under pressure from the OCC to maintain, or possibly increase, the amount of dividends from 1937, to assist the parent company's participation in the implementation of the national policy, as the SSDC itself did.
26 Takagi (Citation2008, 36, 43) also points out that the dividend from the SSDC to the OCC was used as sources for the OCC to engage in the national policy.
27 It can be confirmed that the amount for the South Construction Project increased from the previous year by about 1.2 million yen in the breakdown of set-up costs in 1943, although the exact amount of the deferment is unclear (JACAR, B06050197800, B06050208500).
28 The difference between the amount of provision and that of actual payment is unclear. Therefore, the total amount of provision that the SSDC stopped recognising as the result of a change in the accounting treatment was removed.