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 TSE listing rules that include numerical targets for female board members are limited to prime market listed companies, so the majority of listed companies are not covered.</li>
<li>The "priority policy" on diversity is not budgeted or legislated. In the absence of underlying legislation, it is left to companies to decide how seriously they will implement it.</li>
<li>Regarding "30% or more female board members by 2030," if companies want to achieve this goal, they'll have to rely on female outside board members to make up the numbers.</li>
</ul>


The TSE listing rules that include numerical targets for female board members are limited to prime market listed companies, so the majority of listed companies are not covered.
The "priority policy" on diversity is not budgeted or legislated. In the absence of underlying legislation, it is left to companies to decide how seriously they will implement it.
Regarding "30% or more female board members by 2030," if companies want to achieve this goal, they'll have to rely on female outside board members to make up the numbers.


Diversity Is a Goal of Effort Left to a Company with a Sideways Eye on the Government's Seriousness

<ul>
<li>The relationship between % of female managers and P/B doesn't appear to be as strong as the significant correlation found between % of female directors and the value creation indices</li>
<li>Currently, companies in business categories where women have greater opportunities to play active roles (new business models) are appointing female employees to management positions, and such  companies have higher P/Bs.</li>
<li>Since the gender wage gap is attributed to % of female managers, unless a company has significant opportunities for women to play active roles, the gender wage gap is large.</li>
</ul>


The relationship between % of female managers and P/B doesn't appear to be as strong as the significant correlation found between % of female directors and the value creation indices
Currently, companies in business categories where women have greater opportunities to play active roles (new business models) are appointing female employees to management positions, and such  companies have higher P/Bs.
Since the gender wage gap is attributed to % of female managers, unless a company has significant opportunities for women to play active roles, the gender wage gap is large.


Limited Number of Business Types with Great Opportunities for Women Is at Heart of the Problem

<ul>
<li>TSE market capitalization of has doubled since 1990 and the number of companies has doubled, while TOPIX is 20% lower than its 1989 high. Money went mainly to IPOs.</li>
<li>P/B, TSE's expectation for stock price appreciation, had high correlation with TOPIX, 0.84 from 1999-2019. However, it correlated negatively for 4 years from 2020 with other factors having significant impact.</li>
<li>Correlation between TOPIX and nominal GDP is 0.94 for 2020-2023, showing higher correlation. Expectations of higher nominal profits caused by transition from deflation to inflation are behind the stock rally.</li>
</ul>


TSE market capitalization of has doubled since 1990 and the number of companies has doubled, while TOPIX is 20% lower than its 1989 high. Money went mainly to IPOs.
P/B, TSE's expectation for stock price appreciation, had high correlation with TOPIX, 0.84 from 1999-2019. However, it correlated negatively for 4 years from 2020 with other factors having significant impact.
Correlation between TOPIX and nominal GDP is 0.94 for 2020-2023, showing higher correlation. Expectations of higher nominal profits caused by transition from deflation to inflation are behind the stock rally.


Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices

<ul>
<li>Companies enjoy the benefits of going public, as a larger market capitalization expands their financing and makes it easier to acquire other companies, without capital raising through equity issuance.</li>
<li>In a market economy, cash returned to shareholders through share buybacks etc is rationally allocated by investing it in companies that need more funds or are worthy of investment.</li>
<li>Companies should successfully communicate their strategies for expanding corporate value and how to use cash to do so. More such companies will lead to the expansion of Tokyo market.</li>
</ul>


Companies enjoy the benefits of going public, as a larger market capitalization expands their financing and makes it easier to acquire other companies, without capital raising through equity issuance.
In a market economy, cash returned to shareholders through share buybacks etc is rationally allocated by investing it in companies that need more funds or are worthy of investment.
Companies should successfully communicate their strategies for expanding corporate value and how to use cash to do so. More such companies will lead to the expansion of Tokyo market.


Now Is the Time to Seek Ingenuity in Cash Allocation, Not Lament the Decline in Equity Financing

<ul>
<li>Modest profit growth and slow ROE growth are expected this year, and sustained TOPIX appreciation in the future will depend on increases in ROE and ROE+DOE.</li>
<li>Lower OP Margin is the reason for the lack of ROE growth in FY3/2023. OP Margin and ROE are expected to have difficulty rebounding from this year's profit forecast.</li>
<li>Looking at the results of DOE, Total Dividends Paid and Dividend Payout for FY3/2023, which have not improved, there is still a lot of room for shareholder returns.</li>
</ul>


Modest profit growth and slow ROE growth are expected this year, and sustained TOPIX appreciation in the future will depend on increases in ROE and ROE+DOE.
Lower OP Margin is the reason for the lack of ROE growth in FY3/2023. OP Margin and ROE are expected to have difficulty rebounding from this year's profit forecast.
Looking at the results of DOE, Total Dividends Paid and Dividend Payout for FY3/2023, which have not improved, there is still a lot of room for shareholder returns.


Amid Slow ROE Improvement, Calls for Stronger Shareholder Returns Will Become Even Stronger

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)

Diversity Is a Goal of Effort Left to a Company with a Sideways Eye on the Government's Seriousness

I would like to discuss the TSE's July 28 announcement of "Priority Policy on Women's Activities and Gender Equality 2023, regarding the...

Metrical Inc

Limited Number of Business Types with Great Opportunities for Women Is at Heart of the Problem

I would like to discuss the issues on the July 21 Nikkei Newspaper article "The More Female Managers, the Higher the P/B, Like Oriental Land and...

Metrical Inc

Expanding Nominal Profits from Shift from Deflation Rather than P/B Is the Driver of Stock Prices

I would like to discuss the issues on the July 21 Nikkei article, ""TSE Should Continue Reforms to Improve Results of Market Restructuring."

Metrical Inc

Now Is the Time to Seek Ingenuity in Cash Allocation, Not Lament the Decline in Equity Financing

I would like to discuss the issues on the July 14 Nikkei article, "Shrinking Market for Share Buybacks: Growth Challenged, Treasury Stock Gaining...

Metrical Inc

Amid Slow ROE Improvement, Calls for Stronger Shareholder Returns Will Become Even Stronger

I would like to discuss the Nikkei article of July 8, 2023, which stated that "ROE Declines Despite Forecast for Highest Profit in FY2023, Ample...

Metrical Inc