. This becomes clearer if we consider the next set of accounting equations for the Japanese company: (operating profits)+(non-operating revenues)-(non-operating expenses)=(ordinary profits); (ordinary profits)+(extraordinary profit and loss + special retained funds)-(corporation taxes)= profits for the period. In Japan, more than 80%of non-operating expenses is occupied by financial expenses, and almost all of these financial expenses are composed of interest payments and discounting fees. And so, if the corporate objective were really to maintain the stability of ordinary or net profits, then financial expenses such as interest payments should move in a manner which to some extent offsets movements in operating profits. Only in this manner, rather than through the stabilization of interest payments, would changes in operating profits be less likely to destabilize net profits. In fact, it is possible to imagine cases in which the stabilization of interest expenses, far from stabilizing net profits, actually increase their volatility.In this sense, if the main bank relationship actually serves to diversify risk, we should observe financial expenses of client companies being adjusted to offet shifts in their operating profits. In the periods when the operating profits of companies are relatively low, we should observe manifestation of an implicit contract that lowers their financial expenses, so that a large-scale drop in the net profits that the company can claim is averted. The effective borrowing rate of interest for the company is not the contracted face value rate of interest, but the effective rate of interest that takes into account the interest rate of the compensatory balances. If financial expenses are adjusted according to the above-hypothesized implicit contract mechanism, the interest revenues the borrowing company gains from its deposits must also be part of this mechanism.But, these interest revenues are included in the cat...
