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>The most significant reason for decreasing parent-subsidiary listings is the presence of overseas investors who have long pointed out the problems with this issue. This TSE's request will support them.</li>
<li>The issue of parent-subsidiary listing is whether the listed parent should incorporate the profitability of equity-method affiliate/listed subsidiary to enhance its profitability, or effectively use its assets by divesting them.</li>
<li>If extending to equity-method affiliates, there are many companies that haven't made progress in reviewing their business portfolios, and this is where the fundamental issue of ROE not increasing lies.</li>
</ul>


The most significant reason for decreasing parent-subsidiary listings is the presence of overseas investors who have long pointed out the problems with this issue. This TSE's request will support them.
The issue of parent-subsidiary listing is whether the listed parent should incorporate the profitability of equity-method affiliate/listed subsidiary to enhance its profitability, or effectively use its assets by divesting them.
If extending to equity-method affiliates, there are many companies that haven't made progress in reviewing their business portfolios, and this is where the fundamental issue of ROE not increasing lies.


Parent-Subsidiary Listing Issues Lead to Reasons Why ROE Is Not Increasing

<ul>
<li>While cash on hand is high, many companies have not been able to improve their return on capital, so more companies are expected to announce shareholder returns, including share repurchases.</li>
<li>The change in awareness of companies can be attributed largely to the changing environment of high foreign ownership and TSE requests.</li>
<li>Since it takes time to raise the profit margin, and it's not easy to identify CapEx opportunities, the measures to improve ROE will reduce policy shareholdings and cash on hand.</li>
</ul>


While cash on hand is high, many companies have not been able to improve their return on capital, so more companies are expected to announce shareholder returns, including share repurchases.
The change in awareness of companies can be attributed largely to the changing environment of high foreign ownership and TSE requests.
Since it takes time to raise the profit margin, and it's not easy to identify CapEx opportunities, the measures to improve ROE will reduce policy shareholdings and cash on hand.


While Raising Profit Margin Isn't Easy, the Focus Is on Reducing Policy-Shares and Cash on Hand

<ul>
<li>While cash flow has improved, companies haven't found promising investment opportunities. Continuation of a rigid dividend policy is another factor that further increases cash on hand.</li>
<li>Given that the already high level of cash on hand is expected to build further in the current fiscal year, there is room to increase shareholder returns considerably.</li>
<li>For many companies, it is not easy to find new sources of investment other than through M&amp;A, and shareholder returns are the most effective way to reduce cash.</li>
</ul>


While cash flow has improved, companies haven't found promising investment opportunities. Continuation of a rigid dividend policy is another factor that further increases cash on hand.
Given that the already high level of cash on hand is expected to build further in the current fiscal year, there is room to increase shareholder returns considerably.
For many companies, it is not easy to find new sources of investment other than through M&amp;A, and shareholder returns are the most effective way to reduce cash.


For the Time Being, Stronger Shareholder Returns Are an Incentive for the Stock Price to Rise

<ul>
<li>Fraud occurs regardless of the market on which the company is listed or the size of the company. Even if corporate governance is superficially in place, fraud will repeat itself.</li>
<li>If anything can deter the occurrence of scandals, it is diversity. It is necessary to create an organizational environment that accepts different values and allows people to voice their opinions.</li>
<li>In many cases, companies that committed fraud aren't delisted, and management doesn't take responsibility. There continues to be a bad tradition in which the whistleblower is blamed for the fraud.</li>
</ul>


Fraud occurs regardless of the market on which the company is listed or the size of the company. Even if corporate governance is superficially in place, fraud will repeat itself.
If anything can deter the occurrence of scandals, it is diversity. It is necessary to create an organizational environment that accepts different values and allows people to voice their opinions.
In many cases, companies that committed fraud aren't delisted, and management doesn't take responsibility. There continues to be a bad tradition in which the whistleblower is blamed for the fraud.


If It Is a Deterrent to the Occurrence of Scandals, Is It Diversity?

<ul>
<li>New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.</li>
<li>The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.</li>
<li>The company's performance must be in line with the plan disclosed by the company in response to the TSE's request. These companies should consider whether they should remain listed.</li>
</ul>


New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.
The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.
The company's performance must be in line with the plan disclosed by the company in response to the TSE's request. These companies should consider whether they should remain listed.


TOPIX Revision May Be an Opportunity for Companies to Choose to Go Private

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)

Parent-Subsidiary Listing Issues Lead to Reasons Why ROE Is Not Increasing

I would like to discuss the issues on the July 23 Nikkei Shimbun article, “Parent and Subsidiary Listings Halve from Peak; Lawson to Delist on July...

Metrical Inc

While Raising Profit Margin Isn't Easy, the Focus Is on Reducing Policy-Shares and Cash on Hand

I would like to discuss the issues on the July 22 Nikkei Shimbun article, “10 trillion yen of share buybacks coming up in 2024, 30% of which will...

Metrical Inc

For the Time Being, Stronger Shareholder Returns Are an Incentive for the Stock Price to Rise

I would like to discuss the issues on the July 2 Nikkei Newspaper article, “Companies, Good-bye Sleeping Cash: Recruit Holdings Compresses 1...

Metrical Inc

If It Is a Deterrent to the Occurrence of Scandals, Is It Diversity?

I would like to discuss the July 16 Nikkei Shimbun article, "Corporate Accounting Fraud Increases for Third Consecutive Year, Approaching Record...

Metrical Inc

TOPIX Revision May Be an Opportunity for Companies to Choose to Go Private

I would like to discuss the issues on the Nikkei article published on July 11, 2024, "New TOPIX to boost corporate reforms."

Metrical Inc