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>FSA, which wanted to add Sustainability section, could reach a compromise with companies that wanted to eliminate quarterly disclosures, but but the discussion of the substantive issues took a backseat.</li>
<li>Since it would be impossible for the supervisory authority not to take action in cases that may occur in future despite empirical evidence, FSA will impose some penalties for misstatements.</li>
<li>Continuity of information is of utmost importance because if a company that has disclosed quarterly stops doing so, investment decisions will be affected by reduced information available for judging stock-valuation.</li>
</ul>


FSA, which wanted to add Sustainability section, could reach a compromise with companies that wanted to eliminate quarterly disclosures, but but the discussion of the substantive issues took a backseat.
Since it would be impossible for the supervisory authority not to take action in cases that may occur in future despite empirical evidence, FSA will impose some penalties for misstatements.
Continuity of information is of utmost importance because if a company that has disclosed quarterly stops doing so, investment decisions will be affected by reduced information available for judging stock-valuation.


Quarterly Disclosure Discussions Leave Investor Perspectives Behind

<ul>
<li>By nature, management is expected to establish an organizational structure that ensures compliance with laws and regulations, and to put in place a management system to ensure such compliance. </li>
<li>This is a governance issue, but it goes beyond that. If a loose corporate culture permeates the company, it would have an impact on various areas, such as reduced competitiveness.</li>
<li>Based on the analysis of Metrical Score, companies that have enhanced their corporate governance and performed stable earnings and high stock valuations would have minimized risk of falling into scandal.</li>
</ul>


By nature, management is expected to establish an organizational structure that ensures compliance with laws and regulations, and to put in place a management system to ensure such compliance. 
This is a governance issue, but it goes beyond that. If a loose corporate culture permeates the company, it would have an impact on various areas, such as reduced competitiveness.
Based on the analysis of Metrical Score, companies that have enhanced their corporate governance and performed stable earnings and high stock valuations would have minimized risk of falling into scandal.


Lax Governance Would Affects Not Only Occurrence of Scandals, but Also Areas Such as Competitiveness

<ul>
<li>For companies applying transitional measures, it was an opportunity to attract investor attention and consider what is listing. This should serve as an opportunity to promote metabolism of listed companies.</li>
<li>Listing fees are set at the highest rates for prime market, so if the number of prime market companies decreases, TSE revenues will decrease. A conflict of interest has arisen.</li>
<li>With such a conflict of interest at TSE, it is unlikely that the contradiction between the prime market concept and listing criteria that many market participants perceive can be resolved.</li>
</ul>


For companies applying transitional measures, it was an opportunity to attract investor attention and consider what is listing. This should serve as an opportunity to promote metabolism of listed companies.
Listing fees are set at the highest rates for prime market, so if the number of prime market companies decreases, TSE revenues will decrease. A conflict of interest has arisen.
With such a conflict of interest at TSE, it is unlikely that the contradiction between the prime market concept and listing criteria that many market participants perceive can be resolved.


Conflicts of Interest Prevent TSE from Resolving Prime Market Listing Criteria Issues

<ul>
<li>The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.</li>
<li>It was a special year in which changes in the TSE's criteria regarding tradable shares included in the market's listing criteria contributed to the reduction of policy shareholdings.</li>
<li>Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.</li>
</ul>


The reduction of policy shareholdings of companies (excluding financials) for March fiscal year end companies was 2.3 trillion yen, about 600 billion yen more than in the previous fiscal year.
It was a special year in which changes in the TSE's criteria regarding tradable shares included in the market's listing criteria contributed to the reduction of policy shareholdings.
Going forward, companies will need to discuss the nature of cross-shareholdings based on capital allocation even more than they do now.


A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

<ul>
<li>With company cash equivalents reaching all-time high of 140 trillion yen and many company managers feeling that their company's stock price is undervalued, share repurchases will reach all-time high.</li>
<li>Since the introduction of the Corporate Governance Code in 2015, share repurchases have become an established cash allocation alternative for companies. Companies will continue to enhance the practices  over time.</li>
<li>There is a need to deepen communication by showing investors how the company uses cash in its growth strategy, not limited to shareholder returns.</li>
</ul>


With company cash equivalents reaching all-time high of 140 trillion yen and many company managers feeling that their company's stock price is undervalued, share repurchases will reach all-time high.
Since the introduction of the Corporate Governance Code in 2015, share repurchases have become an established cash allocation alternative for companies. Companies will continue to enhance the practices  over time.
There is a need to deepen communication by showing investors how the company uses cash in its growth strategy, not limited to shareholder returns.


Deepening Cash Allocation Required This Year of a New All-Time High in Share Repurchases

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)

Quarterly Disclosure Discussions Leave Investor Perspectives Behind

I would like to discuss the article in the Nikkei Shimbun "FSA Decides to Consolidate Quarterly Disclosure into Earnings Briefings, but Discussions...

Metrical Inc

Lax Governance Would Affects Not Only Occurrence of Scandals, but Also Areas Such as Competitiveness

I would like to discuss the issues regard to the Nikkei article, "Private Investigation Finds Quality Fraud at Mitsubishi Electric and Others...

Metrical Inc

Conflicts of Interest Prevent TSE from Resolving Prime Market Listing Criteria Issues

I would like to discuss the issues on the Nikkei article, "Investors select companies with transitional criteria for prime market listings."

Metrical Inc

A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

I would like to discuss the issues on the October 16 article in the Nikkei article that states that "cross-holding dissolution is progressing."

Metrical Inc

Quarterly Disclosure Discussions Leave Investor Perspectives Behind

I would like to discuss the article in the Nikkei Shimbun "FSA Decides to Consolidate Quarterly Disclosure into Earnings Briefings, but Discussions...

Metrical Inc

Lax Governance Would Affects Not Only Occurrence of Scandals, but Also Areas Such as Competitiveness

I would like to discuss the issues regard to the Nikkei article, "Private Investigation Finds Quality Fraud at Mitsubishi Electric and Others...

Metrical Inc

Conflicts of Interest Prevent TSE from Resolving Prime Market Listing Criteria Issues

I would like to discuss the issues on the Nikkei article, "Investors select companies with transitional criteria for prime market listings."

Metrical Inc

A Fundamental Discussion of the Nature of Policy Shareholdings Will Be Required

I would like to discuss the issues on the October 16 article in the Nikkei article that states that "cross-holding dissolution is progressing."

Metrical Inc

Deepening Cash Allocation Required This Year of a New All-Time High in Share Repurchases

I would like to discuss the issues raised in the Nikkei article to the effect that "The stock prices are likely to rise as share buybacks for the...

Metrical Inc