An independent entity reported that the corporation had overstated profits by around $1.2bn over the past six years, prompting the resignation of CEO Hisao Tanaka and several other senior executives.
Whether everything is out in the open now and Toshiba will recover is one issue, but the bigger question is whether there will be other similar cases to come.
The much heralded corporate governance reform drive underway in Japan has largely been welcomed as a big positive for Japanese stocks and has given extra impetus to the QE fuelled bull-run Japanese equities have enjoyed. The Nikkei is up some 37% over the past 12 months to well above 20,000.
In one way the Toshiba scandal vindicates those who pushed for and secured the reform plans, but the other way to look at it is as something that should worry investors, at least in the near term.
It is possible to take the view that Toshiba could be the first of a number of companies to be caught out in this way as a brighter light is shined on the inner workings of corporate Japan.
Caroline Shaw, head of fund and asset management at Courtiers, believes the corporate governance push is going to affect virtually all Japanese companies on some level.
“Japanese companies have not been accountable to shareholders in the same way as in the West, but if they are to move forward they are going to have to flush the system through, and it will be positive in the long term,” she said.
Shaw said that only time will tell if other companies have done similar things to Toshiba, but noted that the business culture and lack of real analyst scrutiny has leant itself to this kind of behaviour, and is one of the reasons her firm invests very little in Japanese stock.
According to Scott Spencer, an investment manager in the F&C multi-manager team, the situation with Toshiba has come to light because of the reform push, and in that sense it will be a good thing in the long run.