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>Stock sale allows brokers to pass on to the company the attraction of being able to diversify its shareholders, and the cross-shareholding sales scheme allows them to obtain higher commissions.</li>
<li>One of the solutions that companies have come up with in the absence of improved return on capital is to reduce their policy shareholdings.</li>
<li>The use of share repurchases to buy back cross-shareholdings is a very good way to improve return on capital because it also reduces the amount of cash on hand.</li>
</ul>


Stock sale allows brokers to pass on to the company the attraction of being able to diversify its shareholders, and the cross-shareholding sales scheme allows them to obtain higher commissions.
One of the solutions that companies have come up with in the absence of improved return on capital is to reduce their policy shareholdings.
The use of share repurchases to buy back cross-shareholdings is a very good way to improve return on capital because it also reduces the amount of cash on hand.


Companies with More Cash on Hand Are Expected to Use Cross-Shareholdings to Repurchase Shares

<ul>
<li>Engagement begins only when there is a common understanding that “the management goal is to increase corporate value and shareholder interest.</li>
<li>Because of differences in the level of understanding among listed companies, not all companies are able to smoothly discuss solutions to management issues based on the same common understanding.</li>
<li>While ROA improved moderately, ROE improved slightly, indicating that more and more companies are committed to shareholder returns.</li>
</ul>


Engagement begins only when there is a common understanding that “the management goal is to increase corporate value and shareholder interest.
Because of differences in the level of understanding among listed companies, not all companies are able to smoothly discuss solutions to management issues based on the same common understanding.
While ROA improved moderately, ROE improved slightly, indicating that more and more companies are committed to shareholder returns.


Activist Investors with Increased AUM Will Also Likely Target Larger Companies for Investment

<ul>
<li>Investors want to see if management can be entrusted with strategies to increase certainty of achieving plans, to build foundations for growth to expand corporate value, and to manage company.</li>
<li>The problem is that the disclosed contents of the mid-term management plan do not include necessary information, or the goals themselves are not what investors are looking for.</li>
<li>Before disclosing medium-term management plans, companies should estimate how much return on capital can be achieved by the plan and how much the corporate value and stock price will be.</li>
</ul>


Investors want to see if management can be entrusted with strategies to increase certainty of achieving plans, to build foundations for growth to expand corporate value, and to manage company.
The problem is that the disclosed contents of the mid-term management plan do not include necessary information, or the goals themselves are not what investors are looking for.
Before disclosing medium-term management plans, companies should estimate how much return on capital can be achieved by the plan and how much the corporate value and stock price will be.


The Strategy Is More Important than Whether the Mid-Term Business Plan and the Actual Are Blurred

<ul>
<li>Companies with high stock price valuations are often characterized by high foreign shareholdings and high return on capital, and valuations cannot be raised simply by disclosure without improving profitability.</li>
<li>Companies that proactively disclosed to TSE requests were those with large market capitalization and high foreign ownership. They usually try to use their cash effectively for investment and shareholder returns.</li>
<li>Raising profit margin is the best way to improve capital profitability. It's clear that challenge lies in restructuring the business portfolio and reorganizing the industry, which few companies could do.</li>
</ul>


Companies with high stock price valuations are often characterized by high foreign shareholdings and high return on capital, and valuations cannot be raised simply by disclosure without improving profitability.
Companies that proactively disclosed to TSE requests were those with large market capitalization and high foreign ownership. They usually try to use their cash effectively for investment and shareholder returns.
Raising profit margin is the best way to improve capital profitability. It's clear that challenge lies in restructuring the business portfolio and reorganizing the industry, which few companies could do.


Investors Are Disappointed that ROE Is Not Improving, yet Companies Can't Disclose to Improve It

<ul>
<li>Dividends are still the mainstay of shareholder returns, but shareholder returns, including share buybacks, became a standard “P/B raising measure,” which is why share buybacks increased on a company-by-company basis.</li>
<li>Share repurchases increased significantly this year as large cross-holding share dissolutions were undertaken through share repurchases. Share buybacks will continue increasing due to share repurchases for dissolution of cross-shareholdings.</li>
<li>Companies that have been reluctant to retire treasury stock are finally moving to do so. This is expected to be a change of the companies.</li>
</ul>


Dividends are still the mainstay of shareholder returns, but shareholder returns, including share buybacks, became a standard “P/B raising measure,” which is why share buybacks increased on a company-by-company basis.
Share repurchases increased significantly this year as large cross-holding share dissolutions were undertaken through share repurchases. Share buybacks will continue increasing due to share repurchases for dissolution of cross-shareholdings.
Companies that have been reluctant to retire treasury stock are finally moving to do so. This is expected to be a change of the companies.


"TSE's Request” and Dissolution of Cross-Shareholdings Are Behind the Increase 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)

Companies with More Cash on Hand Are Expected to Use Cross-Shareholdings to Repurchase Shares

I would like to discuss the issues on the December 25 Nikkei Shimbun article, “2.4 Trillion Yen in Stock Offerings to Reduce Policy Shareholdings,...

Metrical Inc

Activist Investors with Increased AUM Will Also Likely Target Larger Companies for Investment

I would like to discuss the issues on the December 27 Nikkei Shimbun article, “133 Large Holdings by Activist Investors: Increased Pressure to...

Metrical Inc

The Strategy Is More Important than Whether the Mid-Term Business Plan and the Actual Are Blurred

I would like to discuss the issues on the Nikkei article, “Is a Medium-Term Management Plan Necessary?" published on December 24.

Metrical Inc

Investors Are Disappointed that ROE Is Not Improving, yet Companies Can't Disclose to Improve It

I would like to discuss the issues on the December 23 Nikkei Shimbun article, “80% of 1,354 Companies Disclose ‘Stock Price Conscious’ Measures;...

Metrical Inc

Companies with More Cash on Hand Are Expected to Use Cross-Shareholdings to Repurchase Shares

I would like to discuss the issues on the December 25 Nikkei Shimbun article, “2.4 Trillion Yen in Stock Offerings to Reduce Policy Shareholdings,...

Metrical Inc

Activist Investors with Increased AUM Will Also Likely Target Larger Companies for Investment

I would like to discuss the issues on the December 27 Nikkei Shimbun article, “133 Large Holdings by Activist Investors: Increased Pressure to...

Metrical Inc

The Strategy Is More Important than Whether the Mid-Term Business Plan and the Actual Are Blurred

I would like to discuss the issues on the Nikkei article, “Is a Medium-Term Management Plan Necessary?" published on December 24.

Metrical Inc

Investors Are Disappointed that ROE Is Not Improving, yet Companies Can't Disclose to Improve It

I would like to discuss the issues on the December 23 Nikkei Shimbun article, “80% of 1,354 Companies Disclose ‘Stock Price Conscious’ Measures;...

Metrical Inc

"TSE's Request” and Dissolution of Cross-Shareholdings Are Behind the Increase in Share Repurchases

I would like to discuss the issues on the December 20 Nikkei Newspaper article, “Share Buybacks to Reach 17 Trillion Yen in 2024; Active...

Metrical Inc