Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Given the increased stock market volatility, it's not surprising that activist investment strategies are a good fit for investors seeking investment strategies that are less correlated with stock market fluctuations.</li>
<li>Japanese companies that have lower valuations, less effective steps to maximize their corporate value, and face many challenges in their governance practices are are well suited to activist investor approach.</li>
<li>Unlike passive investors who have an impact on the overall stock market, activist investors' purchases will have a limited impact on the overall market, but their presence will be significant.</li>
</ul>


Given the increased stock market volatility, it's not surprising that activist investment strategies are a good fit for investors seeking investment strategies that are less correlated with stock market fluctuations.
Japanese companies that have lower valuations, less effective steps to maximize their corporate value, and face many challenges in their governance practices are are well suited to activist investor approach.
Unlike passive investors who have an impact on the overall stock market, activist investors' purchases will have a limited impact on the overall market, but their presence will be significant.


Activist Investors Will Grow Their Presence, as Japanese Equities Would Be Good Fit for The Approach

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.</li>
<li>This insight is a follow-up to <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-aug-2022" target="_blank" data-smartkarma-citation="insights:74615" rel="noopener">TOPIX Inclusions: Who Is Ready (Aug 2022)</a> </li>
<li>At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.</li>
</ul>


Quiddity's "Who is Ready" series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Aug 2022) 
At present, there are 53 names that satisfy all of these conditions and there are more names that are close to being in that group.


TOPIX Inclusions: Who Is Ready (Oct 2022)

<ul>
<li>With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.</li>
<li>Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.</li>
<li>Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.</li>
</ul>


With the revision of Corporate Governance Code in 2021 and its listing criteria on prime market, the groundwork has been laid to some degree to facilitate functioning of compensation committee.
Meanwhile, there are not many companies with voluntary nominating and compensation committees that disclose the authority of their nominating and compensation committees in their annual securities reports.
Many companies, even large companies, do not even have a compensation policy in place, indicating that individual director compensation is a much lower priority to consider.


Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

<ul>
<li>Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.</li>
<li>No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.</li>
<li>Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.</li>
</ul>


Changes in Tobin's q were closely related to increases in foreign ownership. Companies with increases in Tobin's q reduced cash equivalents and total assets, suggesting they used assets more effectively.
No significant correlation was shown between Tobin's q and board practices, but companies with large increases in Tobin's q improved in % independent directors and the independence of compensation committees.
Companies with increases in Tobin's q showed superior values in Key Actions: change in growth policy score, dividend policy score, cash holdings score, frequency of share retirements, AGM/IR disclosure scores.


What Initiatives Are Being Taken by Companies that Have Increased Valuations?

<ul>
<li>The decision as to why a company should or should not repurchase its own shares now is also a management vision.</li>
<li>Management of companies with low stock valuations should seriously discuss why they are low and implement measures to address the problem.</li>
<li>The company should consider what combination of cash-allocations is reasonable and effective for its situation, and announce it to investors, including plan for what to do with the treasury stock.</li>
</ul>


The decision as to why a company should or should not repurchase its own shares now is also a management vision.
Management of companies with low stock valuations should seriously discuss why they are low and implement measures to address the problem.
The company should consider what combination of cash-allocations is reasonable and effective for its situation, and announce it to investors, including plan for what to do with the treasury stock.


Share Repurchases Should Be Tailored to the Individual Company's Effective Cash Allocation

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Activist Investors Will Grow Their Presence, as Japanese Equities Would Be Good Fit for The Approach

I would like to discuss the points raised in the Nikkei article, "Autumn is the season for stock picking, and activists are flocking to small- and...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Oct 2022)

Appier Group, ArtSpark Holdings, and Chubu Steel Plate are interesting TOPIX Inclusion Pre-event names that are worth tracking over the next few...

Janaghan Jeyakumar, CFA

Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

On Nikkei article, "Director Compensation 'President's Discretion' at 30%, while 90% of Major Companies Have Compensation Committees," I would like...

Metrical Inc

What Initiatives Are Being Taken by Companies that Have Increased Valuations?

Focusing on changes in Tobin's for 1,487 companies over the period from tDecember 2020 to February 2022, I examined what initiatives were taken by...

Metrical Inc

Activist Investors Will Grow Their Presence, as Japanese Equities Would Be Good Fit for The Approach

I would like to discuss the points raised in the Nikkei article, "Autumn is the season for stock picking, and activists are flocking to small- and...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Oct 2022)

Appier Group, ArtSpark Holdings, and Chubu Steel Plate are interesting TOPIX Inclusion Pre-event names that are worth tracking over the next few...

Janaghan Jeyakumar, CFA

Move to Company with Statutory Committees Is Shortcut to Make the Compensation Committee Functional

On Nikkei article, "Director Compensation 'President's Discretion' at 30%, while 90% of Major Companies Have Compensation Committees," I would like...

Metrical Inc

What Initiatives Are Being Taken by Companies that Have Increased Valuations?

Focusing on changes in Tobin's for 1,487 companies over the period from tDecember 2020 to February 2022, I examined what initiatives were taken by...

Metrical Inc

Share Repurchases Should Be Tailored to the Individual Company's Effective Cash Allocation

I would like to discuss the issues on the Nikkei article which states that "August share buyback quotas increased 43% YoY, a record high for August."

Metrical Inc