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The purpose of this study is (1) to explore how financial reporting was practised under the condition of shareholders' effective governance that operated in Japanese industrial firms in the pre-Second World War period and (2) to investigate reasons why the Working Rules for Financial Statements issued in 1934 had no important impact upon financial reporting practice by examining empirical data for the pattern of reporting adopted by 18 chemical firms. The study demonstrates that the reason for the absence of practical impact of the Working Rules was not simply the lack of enforcement power, as suggested in prior studies, but that financial reporting practice was influenced by: an extreme concealment policy founded on the unfinished separation of management from ownership; the formation of the new business concerns in the Japanese chemical industry; and a prolonged industrial slump in the chemical industry during the 1920s and the early 1930s.

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