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Japan’s stock exchange will introduce a new naming and shaming system to promote better governance and higher valuations.
Japan Exchange Group, which controls the Tokyo and Osaka exchanges, told companies in March it wanted to see progress in improving corporate value, a key catalyst in helping Japan’s markets regain ground lost after the crash more than 30 years ago.
JPX Chief Executive Hiromi Yamaji now says he intends to give investors a clearer picture of which companies are achieving those goals by publicly naming for the first time listed companies that meet its requirements.
“We will update the list every month, but the first list will be published in January… that is the plan,” he told the Financial Times in an interview. “In Japan . . . peer pressure or nudges are a very important way to move people forward.”
This year has been a breakthrough year for Japanese stocks, which have disappointed domestic and global investors for decades. Both the Topix and Nikkei 225 are up more than 20% this year.
A weak yen is a major support, as is the emergence of long-dormant inflation, which gives companies greater ability to raise prices. Japan has also attracted interest from global investors who are keen to expand investment in Asia but do not want to take on the geopolitical and regulatory risks associated with China.
But steps by governments and market regulators to strengthen board structures, attract institutional and retail investment flows and push companies to adopt more dynamic strategies have also helped.
Those efforts culminated earlier this month when Prime Minister Fumio Kishida held a week-long series of meetings with the world’s largest fund managers.
The missing element, investors say, is a clear sign that stock exchanges are making a real push for companies to improve their cost of capital, governance standards and interactions with shareholders. This is a guideline, not a requirement.
Yamaji highlighted earlier this year that about half of the companies in the major indexes have price-to-book ratios below 1, meaning the market values them at less than the net worth of their net assets. Now, the exchange plans to go after companies that have disclosed plans to comply with the code, in effect shaming those that don’t.
“We are publishing the actual list of names of companies that do disclose, but obviously we only have 3,300 companies listed on the main and standard (markets) . . . you can subtract . . . it’s not a difficult calculus,” Yamaji said .
The exchange will also solicit and publish investor views on steps taken by companies, such as raising dividends, increasing share buybacks, selling non-core assets or improving communications with the market.
“Regular updates to the list of all companies that are implementing (Tokyo Stock Exchange) requirements will further bring Japan’s corporate governance reform into the spotlight,” said Bruce Kirk, chief Japan equity strategist at Goldman Sachs. Near-term pressure on management teams to respond before year-end.”
David Mitchinson of Zennor Asset Management said: “This naming and shaming tactic will increase pressure on most companies. Only 31% of companies have responded formally so far, so those that have not responded will face significant pressure from shareholders. pressure.”
Shan Er pointed out that large companies with lower price-to-book ratios tend to make faster progress than smaller companies. Among companies with a market value of more than 100 billion yen, the proportion of companies that responded jumped to 45%.
But he warned that his expectations were higher: “We will continue to reiterate that our demands are not just for those companies that trade in…” . Book. No, everyone is a target. ”
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