“Corporate Governance of Japan – Analysis and Prospects –” was presented at BDTI Seminar held on October 2 2017
“Corporate Governance of Japan – Analysis and Prospects -” was presented at BDT Seminar held on October 2 2017 as the update research of Corporate Governance of Japan at the BDTI Seminar in March and Goldman Sachs Securities Seminar in April 2017. The updated research focuses on how Corporate Governance practice (Board Practice + Action) correlates with Value Creation. METRICAL analyzes statistical correlation between CG practice and value creation measure such as ROA, ROE and Tobin’s Q, and examines how the outcomes improve in August from March 2017 after AGM in June.
The analysis in March showed there was no statistically significant positive correlation between board practice and performance such as ROA, ROE and TQ, whereas there was significantly positive correlation between Action such as lower cross-shareholdings/sales, less equity issuance, more share cancelation and robust growth policy. Also, focusing on the performance of % of independent directors/total number of directors by each 5% group, >50% group clearly indicates superior performance to lower % groups. The analysis in August shoed similar statistical results. Comparing scores in each CG practice criteria between March and August, encouragingly average score for >50% companies continued gaining in August, although we suspected that those companies had improved CG practiced due to confidence led by their superior performance. One of the issues in Japan is the number of such companies is very limited. Of the universe (Topix+JPX400）of 506 companies, only 26 companies employ the board of directors comprised of majority of independent directors (INED) and the number has not increased from March.
In conclusion, METRICAL explores future analysis and issue to solve problems. As a result of mentioned earlier, a question that Why do companies take Actions right now, as a Action such as reduction of cross-shareholding statistically correlates significantly positive correlation with performance? Also, the analysis presumes >50% INED functions effectively on CG practices. However, it would be a long way as examining currently limited number of such companies. The issues are that the % should accelerate and the function of INED should strengthen even in case of =<50% INED.
Please see detail of the research in the following link.
Please feel free to contact the below email address if any interest or query.
Aki Matsumoto, CFA