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>Regarding the three most in-demand documents, only 30-50% of companies with over 30% foreign ownership disclose them in English. The mismatch between overseas investors' demand and companies' disclosure continues.</li>
<li>If TSE requires faster timing of disclosure in English, companies may limit the materials they disclose in English due to increased burden. Disclosing necessary materials is more important than timing.</li>
<li>In order to encourage companies to disclose in English in their annual securities reports, the Corporate Governance Code should clearly state the disclosure in English in the annual securities report.</li>
</ul>


Regarding the three most in-demand documents, only 30-50% of companies with over 30% foreign ownership disclose them in English. The mismatch between overseas investors' demand and companies' disclosure continues.
If TSE requires faster timing of disclosure in English, companies may limit the materials they disclose in English due to increased burden. Disclosing necessary materials is more important than timing.
In order to encourage companies to disclose in English in their annual securities reports, the Corporate Governance Code should clearly state the disclosure in English in the annual securities report.


Earlier Timing of Disclosure in English May Create Another Mismatch with Investor Demand

<ul>
<li>The Nikkei article addresses high-dividend investing as short-term strategy, while "Quality Income" is in demand by long-term investors seeking stable long-term performance. Both strategies have different investor segments and needs.</li>
<li>Many Japanese companies have basic policy of "stable dividends," but it is easier for shareholders seeking to increase shareholder interests to understand a dividend policy based on clear cash allocations.</li>
<li>Given that Metrical's analysis also found no correlation between changes in market capitalization and dividend policy scores, linking dividends and stock price is a difficult problem.</li>
</ul>


The Nikkei article addresses high-dividend investing as short-term strategy, while "Quality Income" is in demand by long-term investors seeking stable long-term performance. Both strategies have different investor segments and needs.
Many Japanese companies have basic policy of "stable dividends," but it is easier for shareholders seeking to increase shareholder interests to understand a dividend policy based on clear cash allocations.
Given that Metrical's analysis also found no correlation between changes in market capitalization and dividend policy scores, linking dividends and stock price is a difficult problem.


"Stable Dividend" Tradition May Have Something to Do with Rewarding Cross-Held Shareholders

<ul>
<li>There seems to be consensus on the end of the transitional measures in 3 years. Even if this issue is finally settled, the issue of prime market quality will remain.</li>
<li>There’s no better solution to raise stock price than for companies to develop their own strategies and expand corporate value. TSE should promote metabolism and improve quality of the market.</li>
<li>If the quality of corporate governance is an issue, it is necessary to encourage change in boards that are dominated by male internal executive directors and lack diversity.</li>
</ul>


There seems to be consensus on the end of the transitional measures in 3 years. Even if this issue is finally settled, the issue of prime market quality will remain.
There’s no better solution to raise stock price than for companies to develop their own strategies and expand corporate value. TSE should promote metabolism and improve quality of the market.
If the quality of corporate governance is an issue, it is necessary to encourage change in boards that are dominated by male internal executive directors and lack diversity.


Quality Issues Are a Common Challenge for TSE Market Restructuring and Corporate Governance Reform

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-jan-2023" target="_blank" data-smartkarma-citation="insights:86980" rel="noopener">TOPIX Inclusions: Who Is Ready (Jan 2023)</a> </li>
<li>Our top pick from the last insight <a href="https://www.smartkarma.com/entities/celsys-inc" target="_blank" data-smartkarma-citation="entities:20774:1" rel="noopener">CELSYS (3663 JP)</a> (previously known as Artspark) has gained ~14% in roughly a month.</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 (Jan 2023) 
Our top pick from the last insight CELSYS (3663 JP) (previously known as Artspark) has gained ~14% in roughly a month.


TOPIX Inclusions: Who Is Ready (Feb 2023)

<ul>
<li>11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.</li>
<li>Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.</li>
<li>As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.</li>
</ul>


11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
As for the independence of the Nominating and Compensation Committee, which didn't show significant correlation with % of foreign shareholders, it's still beyond the power of engagement by overseas investors.


Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

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)

Earlier Timing of Disclosure in English May Create Another Mismatch with Investor Demand

I would like to discuss the summary and the issues on the materials published by TSE on January 17 in its Survey on the Implementation Status of...

Metrical Inc

"Stable Dividend" Tradition May Have Something to Do with Rewarding Cross-Held Shareholders

I would like to discuss the January 16 Nikkei article, "Determining 'Willingness and Ability' to Invest in High-Dividend Stocks; Signs of Stocks...

Metrical Inc

Quality Issues Are a Common Challenge for TSE Market Restructuring and Corporate Governance Reform

I would like to discuss the issues on the materials of the 6th Follow-up Meeting on the Revision of Market Segmentation disclosed by the TSE on...

Metrical Inc

TOPIX Inclusions: Who Is Ready (Feb 2023)

The ArtSpark (CELYSYS) pre-event situation, the Axxzia TOPIX Inclusion, and our early preview of the Big April Basket 2023 are currently the most...

Janaghan Jeyakumar, CFA

Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But...

By conducting a multiple regression analysis, I would like to explore which corporate governance practices tend to improve as the foreign...

Metrical Inc