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>For years, overseas investors have raised concerns about management's lack of awareness regarding fiduciary duty to fulfill corporate value growth and shareholder returns, which are integral to maximizing shareholder interest.</li>
<li>While the weak yen has certainly increased the “foreign currency translation adjustment” and impacted ROE, it has also had a positive effect on profits.</li>
<li>Among the three components of ROE, Net Profit Margin showed the highest correlation. There is a problem with accumulating cash on the balance sheet without investing to improve profit margins.</li>
</ul>


For years, overseas investors have raised concerns about management's lack of awareness regarding fiduciary duty to fulfill corporate value growth and shareholder returns, which are integral to maximizing shareholder interest.
While the weak yen has certainly increased the “foreign currency translation adjustment” and impacted ROE, it has also had a positive effect on profits.
Among the three components of ROE, Net Profit Margin showed the highest correlation. There is a problem with accumulating cash on the balance sheet without investing to improve profit margins.


Who Benefits from Hoarding Cash Without Implementing Measures to Boost Profit Margins?

<ul>
<li>Share buybacks peak every year in June when AGMs are held, after which the “Quiet Period” begins. Toward the fiscal year-end, buybacks are expected as a means to resolve cross-shareholdings.</li>
<li>Given that the capital profitability of all TSE-listed companies hasn't shown improvement, investors must continue to call for reducing excess cash reserves through dissolution of cross-shareholdings and the share buybacks.</li>
<li>Shareholders entrust management with the responsibility to maximize shareholder interest, which includes shareholder returns and corporate value growth. It's natural for shareholders to demand that management fulfill this fiduciary duty.</li>
</ul>


Share buybacks peak every year in June when AGMs are held, after which the “Quiet Period” begins. Toward the fiscal year-end, buybacks are expected as a means to resolve cross-shareholdings.
Given that the capital profitability of all TSE-listed companies hasn't shown improvement, investors must continue to call for reducing excess cash reserves through dissolution of cross-shareholdings and the share buybacks.
Shareholders entrust management with the responsibility to maximize shareholder interest, which includes shareholder returns and corporate value growth. It's natural for shareholders to demand that management fulfill this fiduciary duty.


The Game Has Changed Since the Era of Cross-Shareholdings

<ul>
<li>During fiscal year 2024, which spans March 2024 to March 2025, the policy-held shares are estimated to have been reduced by approximately 20%.</li>
<li>Financial institutions are accelerating their expansion into overseas markets, and as profits from Japanese operations stagnate, the rationale for maintaining cross-shareholdings with Japanese companies is diminishing.</li>
<li>Some companies focused on the domestic market wish to continue holding cross-shareholdings due to business relationships. The gap between these companies and those expanding globally is expected to widen further.</li>
</ul>


During fiscal year 2024, which spans March 2024 to March 2025, the policy-held shares are estimated to have been reduced by approximately 20%.
Financial institutions are accelerating their expansion into overseas markets, and as profits from Japanese operations stagnate, the rationale for maintaining cross-shareholdings with Japanese companies is diminishing.
Some companies focused on the domestic market wish to continue holding cross-shareholdings due to business relationships. The gap between these companies and those expanding globally is expected to widen further.


Financial Institutions Should Accelerate the Reduction of Their Policy Shareholdings

<ul>
<li>Following TSE's market restructuring, which raised listing maintenance standards, companies finding it difficult to maintain their listings under the previous conditions ar moving to markets where maintaining listings is easier.</li>
<li>Even after transferring to a regional stock exchange, companies remain subject to listing fees, disclosures and annual securities reports. Despite this, companies maintain listing status to enhance credibility and visibility.</li>
<li>A transition to regional stock exchanges risks further declines in trading liquidity, loss of engagement opportunities, and setbacks in management reforms such as governance and capital profitability improvements.</li>
</ul>


Following TSE's market restructuring, which raised listing maintenance standards, companies finding it difficult to maintain their listings under the previous conditions ar moving to markets where maintaining listings is easier.
Even after transferring to a regional stock exchange, companies remain subject to listing fees, disclosures and annual securities reports. Despite this, companies maintain listing status to enhance credibility and visibility.
A transition to regional stock exchanges risks further declines in trading liquidity, loss of engagement opportunities, and setbacks in management reforms such as governance and capital profitability improvements.


Amid the Spotlight Triggered by TSE's Request, Some Companies Are Shifting into the Shadows

<ul>
<li>The reason for increasing MBOs is due to difficulty for family-owned companies to transfer management control to descendants, rising % independent directors and tradable shares, alongside increased burdens of disclosures.</li>
<li>It's natural for the founding family to choose MBO when they believe that, as things stand, they cannot achieve their paramount mission of passing on management control to future generations.</li>
<li>Considering the benefits gained from being listed, the investment has more than paid for itself. Therefore, founder-family companies prioritizing the transfer of management control to descendants will pursue MBOs.</li>
</ul>


The reason for increasing MBOs is due to difficulty for family-owned companies to transfer management control to descendants, rising % independent directors and tradable shares, alongside increased burdens of disclosures.
It's natural for the founding family to choose MBO when they believe that, as things stand, they cannot achieve their paramount mission of passing on management control to future generations.
Considering the benefits gained from being listed, the investment has more than paid for itself. Therefore, founder-family companies prioritizing the transfer of management control to descendants will pursue MBOs.


Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO

Japan

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TSE Tokyo Price Index TOPIX (TPX INDEX)

Who Benefits from Hoarding Cash Without Implementing Measures to Boost Profit Margins?

I would like to discuss the issues on the Nikkei newspaper article “Considering the Denominator of ROE” published on November 7.

Metrical Inc

The Game Has Changed Since the Era of Cross-Shareholdings

I would like to discuss the issues on the Nikkei article dated November 5th titled “Dividends, Share Buybacks, and Growth: All Wanted—High Bar for...

Metrical Inc

Financial Institutions Should Accelerate the Reduction of Their Policy Shareholdings

I would like to discuss the Nikkei article dated November 4th titled “Policy Shareholdings by Listed Companies Fall 20% to 54 Trillion Yen; Capital...

Metrical Inc

Amid the Spotlight Triggered by TSE's Request, Some Companies Are Shifting into the Shadows

I would like to discuss the Nikkei article dated November 5th titled “Tokyo Stock Exchange and Dual Listings Double; Regional Exchanges Become...

Metrical Inc

Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO

I would like to discuss the issues on the Nikkei newspaper article dated October 27, titled “Is That MBO Really Necessary? The Attitude of...

Metrical Inc