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>Criteria for IPOs aren't a major issue. TSE is concerned that many companies will be in jeopardy of being delisted if the criteria for maintaining listing are raised.</li>
<li>TSE will likely make "request" to Growth Market listed companies to increase their market capitalization if the criteria for maintaining listing are not raised.</li>
<li>From 2025, delisting and subsequent re-listing through M&amp;A and MBOs is expected to increase, which will lead to more investment opportunities.</li>
</ul>


Criteria for IPOs aren't a major issue. TSE is concerned that many companies will be in jeopardy of being delisted if the criteria for maintaining listing are raised.
TSE will likely make "request" to Growth Market listed companies to increase their market capitalization if the criteria for maintaining listing are not raised.
From 2025, delisting and subsequent re-listing through M&amp;A and MBOs is expected to increase, which will lead to more investment opportunities.


The Raising of Listing Criteria in the Growth Market Will Lead to Increased Investment Opportunities

<ul>
<li>Many companies have low liquidity since listing, with nearly half of companies having major shareholders with over 20% ownership. Raising listing criteria should considered to improve quality of the market.</li>
<li>TSE seems to raise the listing criteria for Growth Market in 2025, when the transitional measures expire, but for Prime Market, TSE is likely to respond with a "request."</li>
<li>Although TSE's "request" may be the catalyst for increasing MBOs and dissolution of parent-subsidiary listings, engagement with overseas investors over years to resolve management issues was foundation of this trend.</li>
</ul>


Many companies have low liquidity since listing, with nearly half of companies having major shareholders with over 20% ownership. Raising listing criteria should considered to improve quality of the market.
TSE seems to raise the listing criteria for Growth Market in 2025, when the transitional measures expire, but for Prime Market, TSE is likely to respond with a "request."
Although TSE's "request" may be the catalyst for increasing MBOs and dissolution of parent-subsidiary listings, engagement with overseas investors over years to resolve management issues was foundation of this trend.


TSE's "Request" Is a Catalyst for a Final Decision on the Foundation of Years of Engagement

<ul>
<li>Asset Turnover and ROA deteriorated as a result of accumulating cash on hand rather than investing. There was also insufficient R&amp;D to create products that could have stronger pricing power.</li>
<li>Conditions are ripe for investment expansion, as demand for equipment replacement is rising due to long-standing CapEx restraints, and there is no need to accumulate more cash.</li>
<li>Companies are now in the stage of raising return on capital to increase reinvested cash flow from the stage of temporarily increasing earnings through price pass-through.</li>
</ul>


Asset Turnover and ROA deteriorated as a result of accumulating cash on hand rather than investing. There was also insufficient R&amp;D to create products that could have stronger pricing power.
Conditions are ripe for investment expansion, as demand for equipment replacement is rising due to long-standing CapEx restraints, and there is no need to accumulate more cash.
Companies are now in the stage of raising return on capital to increase reinvested cash flow from the stage of temporarily increasing earnings through price pass-through.


Few Companies Have Started to Move Yet, but Can They Raise R & D Investment to Regain Pricing Power?

<ul>
<li>The two groups with the highest percentages of female board members (companies with over 30% and 20%-30%) are consistent with the characteristics of companies in which overseas investors primarily invest.</li>
<li>Companies with over 30% female board members show superior values in many of Board Practices and Key Actions evaluation items. This may be due to improved engagement by overseas investors.</li>
<li>Companies with no female board members have the lowest values in most Corporate Governance Practices items. Therefore, percentage of female board members indicates the seriousness of improving corporate governance practices.</li>
</ul>


The two groups with the highest percentages of female board members (companies with over 30% and 20%-30%) are consistent with the characteristics of companies in which overseas investors primarily invest.
Companies with over 30% female board members show superior values in many of Board Practices and Key Actions evaluation items. This may be due to improved engagement by overseas investors.
Companies with no female board members have the lowest values in most Corporate Governance Practices items. Therefore, percentage of female board members indicates the seriousness of improving corporate governance practices.


Challenges in Using Cash, Even in Companies with 30%+ Female Board Members, with Excellent Practices

<ul>
<li>Stricter voting standards for domestic investment managers seem aimed at increasing value through engagement for companies that show little improvement in efforts to improve stock price and return on capital.</li>
<li>Stricter voting standards for policy shareholding ratios of domestic investment management companies are expected to push companies to consider reducing cross-shareholdings. Reference to deemed shareholdings is also commendable.</li>
<li>Since engagement of overseas investors has been effective in increasing value of companies, engagement by Japanese investment managers more seriously than before will contribute to enhancing the value of companies.</li>
</ul>


Stricter voting standards for domestic investment managers seem aimed at increasing value through engagement for companies that show little improvement in efforts to improve stock price and return on capital.
Stricter voting standards for policy shareholding ratios of domestic investment management companies are expected to push companies to consider reducing cross-shareholdings. Reference to deemed shareholdings is also commendable.
Since engagement of overseas investors has been effective in increasing value of companies, engagement by Japanese investment managers more seriously than before will contribute to enhancing the value of companies.


Stricter Voting Criteria for Domestic Asset Managers May Aim to Enhance Value Through Engagement

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)

The Raising of Listing Criteria in the Growth Market Will Lead to Increased Investment Opportunities

I would like to discuss the issues on "Study on the Listing Criteria for the Growth Market" at the 15th Follow-up Meeting on the Revision of Market...

Metrical Inc

TSE's "Request" Is a Catalyst for a Final Decision on the Foundation of Years of Engagement

I would like to discuss the March 22 Nikkei article, "One Year to Go Until the Expiration of TSE Transitional Measures: 9% of Companies Fail to...

Metrical Inc

Few Companies Have Started to Move Yet, but Can They Raise R & D Investment to Regain Pricing Power?

I would like to discuss the issues on the March 5 Nikkei article, "Prices Have Changed, How About Companies? Improvement of "earning power" is...

Metrical Inc

Challenges in Using Cash, Even in Companies with 30%+ Female Board Members, with Excellent Practices

I would like to discuss the issues on the March 8 Nikkei Newspaper article, "Investment Focuses on Gender Equality, No Future for Male-Dominated...

Metrical Inc

Stricter Voting Criteria for Domestic Asset Managers May Aim to Enhance Value Through Engagement

I would like to discuss the issues on the March 7 Nikkei article, "Two Major Asset Management Companies Oppose Appointment of 'CEO' for Companies...

Metrical Inc