Tag: METRICAL

We have observed the number of female directors as a key factor on board practices to measure how a company is willing to change. The table below shows the correlation analysis between the number of female directors and performance key measures such as ROE (actual), ROA (actual) and Tobin’s Q on the 1,755 companies as of March 31, 2020. We have seen the statistically significant positive correlation between ROE (actual or results) and the factor since we started the correlation analysis with correlation analysis with BDTI in 2017. Now, the factor shows the sign of significance to ROA (actual or results) in this month, updating the data of December fiscal year end companies after AGMs.

The market price in March 2020 continued to fluctuate with high fluctuations due to concerns about the spread of the Coronavirus around the world. Approximately half of the sharp decline by mid-month recovered at the end of the month. Both Topix and JPX400 stocks have fallen sharply in March for the month of -6.46% and -6.79% respectively. The Top20 CG rating score was -6.22%, outperforming the previous month at -0.30% compared to the two main stock indices, with a lower rate of decline. By the way, the stock prices of the ten companies with the top 10 CG rating scores were -1.44%, which was even smaller.

In February 2020, prices fell sharply in the world’s major stock markets by the end of the month, fearing that the spread of the coronavirus could spread to various parts of the world. Both Topix and JPX400 stock indices have fallen sharply to -0.59% and -0.57% respectively in the month of February. The Top20 CG rating score was -0.38%, outperforming the previous month, keeping the decline rate lower than both major stock indices. The stock prices of the 10 companies with the top 10 CG rating scores fell even less, at -0.34%.

Of the CG practice, Takeover defense is one of the criteria that companies have improved since the Corporate Governance Code in June 2015. The following table shows that comparison of about the data of 1,800 Japanese companies between March 2018 and February 2020.

Topics

• 50%
  INEDs increased 1 company (Yamada Consulting [4792]) to 85 (86 companies
  including Toshiba) from the previous month.
• A
  significant positive correlation was found between board practices and value
  creation (ROE, ROA, Tobin’s q) in the following

(Positive
correlation with actual ROE)

• Ratio of female directors and
  ROE results
• Incentive (compensation) plan
  factors and ROE achievements

Stock prices climbed in the 1H of the month on risk-on rally buoyed by hitting historical high of US market, but concern about negative impact on global economy led by coronavirus infection put downward pressure on the stocks toward the month end. TOPIX and JPX400 market indices lost -0.11% and -0.09% respectively for the month. CG Top 20 stocks soft -0.07% but outperformed against the both indices for the same period.

We more often see the company’s posting about share repurchase lately. However, fewer companies retired the treasury shares in the past. How much companies cancel the shares? The following table shows that comparison of about the data of 1,800 Japanese companies between March 2018 and January 2020.

Stock prices edged slightly higher amid low trading volume from the previous month. TOPIX and JPX400 market indices gained 0.06% and 0.06% respectively for the month. CG Top 20 stocks kept solid up by 0.02% for the same period.

Public companies in Japan employ three types of legal governance structures for their boards. The three types of organizational structure are the Company with Corporate Auditors, the Company with an Audit Committee and the Company with Nomination Committee, etc. However, as shown in the pie chart below, very few companies use the Nomination Committee format. The number of companies shown below is based on Metrical’s research universe of 1,754 companies but the number of Companies with Nomination Committee, etc. would not be much different even if more smaller companies were included.

Some research organizations reported that Japanese companies have enhanced the corporate governance and others say the improvement wasn’t higher than expectations. Then, how fast has the corporate governance in Japan made progress for a few years? There would be different perspectives on which criteria each person focus. We would like to show one of the easiest ways that we can see the progress. It is the % of Independent Outside Directors (INEDs) of the board of directors (BOD) that shows very well how fast corporate governance in Japan has improved.
Please see the following 2 charts. The first pie chart shows the number of companies of >50% INEDs and =<50% INEDs in the BOD, respectively as of November 2019. The total number of companies was the companies METRICAL INC. covers as the core research universe (most of companies are listed TSE-1st Section and/or JPY10 billion market cap). A number of companies are included in the =50% INEDs in the pie chart will decrease significantly.