Corporate Governance of Japan – Linkage Between CG and Value Creation (October 2018)

BDTI/METRICAL updated their research series on “Corporate Governance in Japan – Linkage Between CG and Value Creation” as of October 2018. The joint research has analyzed how board practice criteria and action criteria statistically correlate with value creation measures such as ROA, ROE and Tobin’s Q.  An increasing number of criteria or factors of CG show statistically significant correlation with ROE, ROA and Tobin’s Q.  Also, the analysis of the correlation between the percentage of INEDs and the performance measures revealed a J-curve relationship (layered structured, in three groups).  We will keep a close eye on how board practice and actions impact on performance.

We added a new factor, “Retired Top Management”, which is scored as a negative value the number of ex-CEOs who remain as “Komon” or “Sodanyaku” (“advisors”)  in the company but do not serve on the board after stepping down from top management positions. According to the correlation analysis below, a company that has fewer such ex-CEO advisors tends to display higher ROA, Tobin’s Q and lower stockholdings. A company that has more “Komon” or “Sodanyaku” tends to do less equity cancellation, has higher cash holdings, and less robust AGM/IR disclosure.

 

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