Month: September 2024

In this article, I would like to discuss what trends are seen in companies with high corporate governance practice evaluations and what relationship there is between corporate governance practices and profitability and valuations of the companies.

Since February 2018, Metrical has evaluated a universe of approximately 1,800 companies using more than 40 evaluation criteria based on publicly available information such as annual securities reports, corporate governance reports, and financial statements, etc. which are updated on a monthly basis. Metrical also divides its corporate governance analysis into Board Practices and Key Actions. This is based on the hypothesis that for value creation, which is the goal of company management, improvements not only in board practices but also in board practices lead to decisions and actions (key actions), which in turn contribute to value creation. In other words, even if the composition of the board of directors and other aspects of board practices are formally put in place, they may not be utilized in management to create value. I believe that improvement of board practices should lead to actual actions and create value, which is what corporate governance improvement should be about. Below I discuss the relationship between the Metrical CG Score, which is evaluated based on this idea, and the companies’ profitability and valuations.

After a sharp downturn at the beginning of the month, the August stock market gradually calmed down and recovered much of the decline by the end of the month.
In August, the CG Top 20 stock market outperformed both TOPIX and JPX400 for the fourth consecutive month.

The stock market in August, which started following the 0.25% interest rate hike decided at the Bank of Japan’s July monetary policy meeting, fell sharply in confusion from the unwinding of the yen carry trade due to the significantly rising Japanese yen. Thereafter, the yen gradually regained its stability, and the US equity market was strong after passing key events such as Fed Chair Jerome Powell’s speech at Jackson Hole and Nuvidea financial results, which led to a buy-back Japanese stocks rally.
The TOPIX and JPX400 indexes fell 1.96% and 1.23%, respectively, in May, while the CG Top 20 index outperformed significantly both indices up by 2.89%.

The composites of CG Top 20 stocks has been replaced as of July 1.
The CG Top 20 has been revised as of July 1. EBARA CORPORATION (6361), TechnoPro Holdings (6028), ENEOS Holdings (5020), INNOTEC (9880), United Arrows (7606), and Persol Holdings (2181) were newly added to the list, while H.U. Group Holdings (2146), Kao Corporation (4452), Kao (4452), Wacom (6727), K’s Holdings Eisai (8282), and Trend Micro (4704) were removed. (2146), Kao (4452), Wacom (6727), K’s Holdings (8282) Eisai (4523), and Trend Micro (4704) were removed. Details of the component stocks are shown in the table below.