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>Companies that raised the % independent directors in 2021 improved both the nominating committee and compensation committee scores. This is in line with specific requirements of the revised CG Code.</li>
<li>Other than the percentage of independent directors, there were no changes in board practice measures that were positively correlated with significance affecting changes in other criteria.</li>
<li>I will examine whether passive events, such as revision of CG Code, will motivate companies to further improve their governance, or whether more companies will actively improve their governance.</li>
</ul>


Companies that raised the % independent directors in 2021 improved both the nominating committee and compensation committee scores. This is in line with specific requirements of the revised CG Code.
Other than the percentage of independent directors, there were no changes in board practice measures that were positively correlated with significance affecting changes in other criteria.
I will examine whether passive events, such as revision of CG Code, will motivate companies to further improve their governance, or whether more companies will actively improve their governance.


Japan's Governance: How Far Has Corporate Governance Improved in 2021 (5) - Change in ％ of INEDs

<ul>
<li>I suspect that there are other incentives for companies to improve their corporate governance practices (especially board practices) than improved performance (improved ROA and ROE).</li>
<li>Companies that improved ROA used cash raised on B/S from increased profits to return profits to shareholders through increased dividends, but still lacked conviction in using cash for future growth.</li>
<li>It is inferred that companies with higher ROE tend to use cash to buy back their own shares.</li>
</ul>


I suspect that there are other incentives for companies to improve their corporate governance practices (especially board practices) than improved performance (improved ROA and ROE).
Companies that improved ROA used cash raised on B/S from increased profits to return profits to shareholders through increased dividends, but still lacked conviction in using cash for future growth.
It is inferred that companies with higher ROE tend to use cash to buy back their own shares.


Japan's Governance: How Far Corporate Governance Has Progressed in 2021? (4) - Change in ROA and ROE

<ul>
<li>This article analyzes how changes in market capitalization correlate with changes in performance and corporate governance ratings.</li>
<li>Note that the % change in market cap as of December 2020 and December 2021 for 1,704 companies confirms a positive correlation that is more significant with ROA than ROE.</li>
<li>Companies that improved their Metrical score by 10 ppt or more increased their market capitalization the most, followed by companies that improved Metrical score by 5 ppt to 10 ppt.</li>
</ul>


This article analyzes how changes in market capitalization correlate with changes in performance and corporate governance ratings.
Note that the % change in market cap as of December 2020 and December 2021 for 1,704 companies confirms a positive correlation that is more significant with ROA than ROE.
Companies that improved their Metrical score by 10 ppt or more increased their market capitalization the most, followed by companies that improved Metrical score by 5 ppt to 10 ppt.


Japan's Governance: How Far Has Corporate Governance Progressed in 2021(3)

<ul>
<li>The Nikkei newspaper reported that "Equity financing in 2021 is expected to triple from the previous year to 3.7 trillion yen, the highest level in 11 years since the GFC.</li>
<li>The increase in the number of public offerings by Japanese companies to foreign investors could be a reflection of the declining demand from Japanese investors to invest in Japanese companies.</li>
<li>The inability to find investment opportunities is the essence of the problem for Japanese companies. More importantly, they need to find and invest in investment opportunities for sustainable growth.</li>
</ul>


The Nikkei newspaper reported that "Equity financing in 2021 is expected to triple from the previous year to 3.7 trillion yen, the highest level in 11 years since the GFC.
The increase in the number of public offerings by Japanese companies to foreign investors could be a reflection of the declining demand from Japanese investors to invest in Japanese companies.
The inability to find investment opportunities is the essence of the problem for Japanese companies. More importantly, they need to find and invest in investment opportunities for sustainable growth.


Japan's Governance: About the Article on Capital Increase in 2021

<ul>
<li>With regard to the key actions actually taken by listed companies, this article will take a look at how much the efforts of companies have improved over the past year.</li>
<li>We have reviewed the effective use of cash and assets, but we have not been able to confirm any clear use that would lead us to expect growth. </li>
<li>While stock prices and valuations are rising, the slight decline in the ratio of foreign shareholders may have something to do with the sluggish growth in ROE and ROA.</li>
</ul>


With regard to the key actions actually taken by listed companies, this article will take a look at how much the efforts of companies have improved over the past year.
We have reviewed the effective use of cash and assets, but we have not been able to confirm any clear use that would lead us to expect growth. 
While stock prices and valuations are rising, the slight decline in the ratio of foreign shareholders may have something to do with the sluggish growth in ROE and ROA.


Japan's Governance: How Far Has Corporate Governance Progressed in 2021 (2)

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)

Japan's Governance: How Far Has Corporate Governance Improved in 2021 (5) - Change in ％ of INEDs

In 2021, the companies improved the % independent directors and nomination and compensation committees, which are specific requirements for...

Metrical Inc

Japan's Governance: How Far Corporate Governance Has Progressed in 2021? (4) - Change in ROA and ROE

The change in market cap is significantly correlated with the change in Metrical Score and ROA, so corporate governance and fundamentals analysis...

Metrical Inc

Japan's Governance: How Far Has Corporate Governance Progressed in 2021(3)

Companies that improved corporate governance practices in Metrical score by 10 ppt or more increased their market cap the most, followed by...

Metrical Inc

Japan's Governance: About the Article on Capital Increase in 2021

The increase in the number of public offerings by Japanese companies to foreign investors could be seen as a reflection of the declining demand...

Metrical Inc

Japan's Governance: How Far Has Corporate Governance Progressed in 2021 (2)

Focusing on the allocation of cash and the utilization of assets, which influence the growth of corporate value, this article will see how far the...

Metrical Inc