Category

ESG

Nov 27
0

Daily Brief ESG: Who Benefits from Hoarding Cash Without Implementing Measures to Boost Profit Margins? and more

By | Daily Briefs, ESG

In today’s briefing:

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

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

By Aki Matsumoto

  • 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.

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Nov 26
0

Daily Brief ESG: Confirmation of Cancellation of Treasury Shares To Be Made Into Law by End of 2025 and a Loophole? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Confirmation of Cancellation of Treasury Shares To Be Made Into Law by End of 2025 and a Loophole?

Confirmation of Cancellation of Treasury Shares To Be Made Into Law by End of 2025 and a Loophole?

By Douglas Kim

  • On 25 November, the Democratic Party of Korea confirmed that the cancellation of treasury shares will be made into law by the end of 2025.
  • Companies that buyback their shares (as treasury shares) will be required to cancel them within one year of the buyback. 
  • There may be a LOOPHOLE if the company fails to cancel the treasury shares on time. Fine per director is only 50 million won and this may be too low. 

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Nov 25
0

Daily Brief ESG: The Game Has Changed Since the Era of Cross-Shareholdings and more

By | Daily Briefs, ESG

In today’s briefing:

  • The Game Has Changed Since the Era of Cross-Shareholdings

The Game Has Changed Since the Era of Cross-Shareholdings

By Aki Matsumoto

  • 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.

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Nov 23
0

Daily Brief ESG: Financial Institutions Should Accelerate the Reduction of Their Policy Shareholdings and more

By | Daily Briefs, ESG

In today’s briefing:

  • Financial Institutions Should Accelerate the Reduction of Their Policy Shareholdings

Financial Institutions Should Accelerate the Reduction of Their Policy Shareholdings

By Aki Matsumoto

  • 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.

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Nov 21
0

Daily Brief ESG: Amid the Spotlight Triggered by TSE’s Request and more

By | Daily Briefs, ESG

In today’s briefing:

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

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

By Aki Matsumoto

  • 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.

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Nov 19
0

Daily Brief ESG: Background of the Increase in MBOs: Different from the Assumptions at the Time of the IPO and more

By | Daily Briefs, ESG

In today’s briefing:

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

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

By Aki Matsumoto

  • 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.

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Nov 17
0

Daily Brief ESG: Share Buyback Likely to Grow over Growth Investment Hoped for by Corporate Governance Code Revision and more

By | Daily Briefs, ESG

In today’s briefing:

  • Share Buyback Likely to Grow over Growth Investment Hoped for by Corporate Governance Code Revision

Share Buyback Likely to Grow over Growth Investment Hoped for by Corporate Governance Code Revision

By Aki Matsumoto

  • Since TSE’s request, many companies have introduced share buybacks as a measure, and as a result of investors demanding accountability for how these shares are used, share cancellations have increased.
  • Companies that frequently cancel treasury stock demonstrate superior capital profitability. Companies with high capital profitability also exhibit strong scores in growth strategy, cash holdings, dividend policy, and treasury stock cancellation.
  • More companies are expected to consider cash allocation within overall goal of enhancing corporate value, encompassing growth strategy, cash holding policy, and dividend policy, in order to improve capital profitability.

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Nov 15
0

Daily Brief ESG: Will Companies Change with Cash Allocation Disclosures that Don’t Allow Copy-And-Paste Solutions? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Will Companies Change with Cash Allocation Disclosures that Don’t Allow Copy-And-Paste Solutions?

Will Companies Change with Cash Allocation Disclosures that Don’t Allow Copy-And-Paste Solutions?

By Aki Matsumoto

  • Since sustainable growth in corporate value could not be achieved, the revised Corporate Governance Code now focuses on cash allocation practices that are strongly linked to corporate value creation.
  • To achieve the goal of maximizing shareholder interest, strategic planning and investment are essential, and it’s natural to consider the remaining free cash flow as belonging to the owners, shareholders.
  • Pointing out better disclosure methods won’t lead to cash allocation that satisfies investors unless they understand underlying contractual relationship between shareholders and management and the mindset behind executing management decisions.

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Nov 13
0

Daily Brief ESG: For Both the Company and Investors and more

By | Daily Briefs, ESG

In today’s briefing:

  • For Both the Company and Investors, Pre-Negotiation Process as SR Is Becoming Increasingly Important

For Both the Company and Investors, Pre-Negotiation Process as SR Is Becoming Increasingly Important

By Aki Matsumoto

  • Following the 2020 revision of Stewardship Code, domestic institutional investors have gradually increased their support for shareholder proposals. However, the rise in approval rates has paused in the 10% range.
  • Some investors adopt voting policy that allows them to support company proposals if the company’s efforts are deemed commendable, even if numerical targets aren’t met. This makes shareholder engagement important.
  • Given that conditions must align where a company has substantial foreign ownership and doesn’t implement initiatives desired by investors, the approval rate for shareholder proposals is unlikely to rise significantly.

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Nov 10
0

Daily Brief ESG: Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets and more

By | Daily Briefs, ESG

In today’s briefing:

  • Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets

Combining Equity Method Affiliates and Founder Family Companies Provide Sufficient Number of Targets

By Aki Matsumoto

  • In response to calls from overseas investors to eliminate parent-subsidiary dual listings, the number of listed subsidiaries has decreased, while the number of equity-method affiliates has increased.
  • Some companies that found themselves with no wayout resorted to selling off part of their holdings to transition to equity method affiliates, for the time being, driven by herd mentality.
  • When considering investment strategies focused on parent-subsidiary listings, in the highly liquid Prime Market, equity method affiliates are more promising investment targets than the limited number of listed subsidiaries.

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