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>Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.</li>
<li>While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.</li>
<li>TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.</li>
</ul>


Since the introduction of the Corporate Governance Code, the hurdle for listed companies to fulfill their responsibilities has become higher, which is why more managers are choosing to go private.
While some of companies with large market capitalizations that overseas investor engagement extends to are showing promise for change, many others are failing to step up management to create value.
TOPIX's rise has been mainly driven by an increase in the number of companies rather than an increase in stock prices. The market should become higher in quality through de-listing.


Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

<ul>
<li>The fact that only 7% of companies disclosed their cost of capital disappoints investors who had hoped that the "TSE request" would change management's mindset to become more share-price conscious.</li>
<li>The average ROE of listed companies declined slightly. This indicates that they haven't been able to find effective investments to raise business profitability and that shareholder returns have been inadequate.</li>
<li>The ROE trend does not indicate a significant change in management's mindset, so this will be a major issue if the stock price moves lower to the June AGM season.</li>
</ul>


The fact that only 7% of companies disclosed their cost of capital disappoints investors who had hoped that the "TSE request" would change management's mindset to become more share-price conscious.
The average ROE of listed companies declined slightly. This indicates that they haven't been able to find effective investments to raise business profitability and that shareholder returns have been inadequate.
The ROE trend does not indicate a significant change in management's mindset, so this will be a major issue if the stock price moves lower to the June AGM season.


ROE Trends Do Not Seem to Indicate a Significant Change in Management's Mindset?

<ul>
<li>If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?</li>
<li>About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.</li>
<li>Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.</li>
</ul>


If the ISS ROE criteria, which seems somewhat slow, were to be resumed, many companies would still be below 5%. However, how many companies are feeling threatened?
About 40% of the companies have large shareholders holding more than 20% of their shares, which is one reason why many companies do not feel a sense of threat.
Domestic institutional investors should apply the Proxy Voting Guidelines more strictly to companies that do not make maximum efforts to increase their ROE.


To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

<ul>
<li>Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.</li>
<li>The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.</li>
<li>With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.</li>
</ul>


Looking at BOJ's fund flows for private non-financial corporations for 4 cumulative quarters, Cash and Deposits have increased, and Outward Direct Investment has increased steadily as a destination for cash.
The average dividend payout ratio for listed companies has remained flat, while both ROE and DOE have declined slightly, which may reinforce the view that shareholder returns are not sufficient.
With cash on hand still increasing while capital expenditures have not grown much, the use of cash is expected to remain a focus of discussion next fiscal year.


Is the Deflationary Mindset of Managers Still Prevailing?

<ul>
<li>It will be useful for investors if timely disclosure information, which has large market impact but is still disclosed in English by half of companies, is disclosed in English simultaneously.</li>
<li>By limiting the TSE policy to documents that are already disclosed in English by many companies, there is concern that other high-demand documents may not be disclosed in English.</li>
<li>An analysis of English disclosure status and value creation indicators shows that many companies, even those with high profitability and high stock valuation, are not ready for disclosure in English.</li>
</ul>


It will be useful for investors if timely disclosure information, which has large market impact but is still disclosed in English by half of companies, is disclosed in English simultaneously.
By limiting the TSE policy to documents that are already disclosed in English by many companies, there is concern that other high-demand documents may not be disclosed in English.
An analysis of English disclosure status and value creation indicators shows that many companies, even those with high profitability and high stock valuation, are not ready for disclosure in English.


TSE Policy Seems to Be that Disclosure in English Is Left to the Companies' Own Initiative

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)

Isn't It Hypocritical to Request a P/B Raising Measure While Continuing the Listed Subsidiary IPO?

I would like to discuss the issues on the November 26 Nikkei Shimbun article, "MBOs to Top 1 Trillion Yen in 2023, Taisho Pharmaceutical and...

Metrical Inc

ROE Trends Do Not Seem to Indicate a Significant Change in Management's Mindset?

I would like to discuss the issues on the Nikkei article published on December 22, "Cost of Capital Disclosure Stays at 7%."

Metrical Inc

To Raise ROE, Breaking Away from Familiar Relationships and Creating Tension in Management Is Key

I would like to discuss the issues on the December 21 Nikkei article, "U.S. Proxy Voting Advisor ISS to Restore ROE Criteria; Objections to...

Metrical Inc

Is the Deflationary Mindset of Managers Still Prevailing?

I would like to discuss the issues on the December 20 Nikkei article, "Weak Yen and M&A Effects Lead to Highest Corporate Financial Assets, Likely...

Metrical Inc

TSE Policy Seems to Be that Disclosure in English Is Left to the Companies' Own Initiative

I would like to discuss the issues on the TSE's December 18 disclosure on the "Expansion of English Disclosure in the Prime Market."

Metrical Inc