Case 42: Nikko Cordial (Japan, 2007)

• Prof. Dr. Klaus Henselmann
• Dr. Stefan Hofmann

In late 2006, the Nikko Cordial Corporation was Japan’s third-largest stockbrokerage group. As one of the nation’s leading securities houses, it should have been setting a good example on corporate disclosure for listed companies. But in December 2006, Nikko Cordial announced that its two most senior executives would resign because of accounting irregularities. Besides, Japan’s Securities and Exchange Surveillance Commission (SESC) recommended a civil fine on Nikko Cordial of USD 4.2 million, based on misrepresentations in the brokerage group’s filings for the period ended March 2005. In response to this, the Tokyo Stock Exchange placed Nikko Cordial’s shares on supervised status as it investigated whether the violations met the criteria for delisting. In the weeks to come, the share price plunged on speculation that Nikko’s liquidity would dry up. Meanwhile, the company had been severely disgraced, sending a clear message to other firms that they must clean up their accounting practices or risk exposure and embarrassment.

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