The chief executive of the Japanese stock exchange said fewer companies were being listed without a specific purpose due to corporate governance policies and growing shareholder activism.
Hiromi Yamaji, the head of the Japan Exchange Group which controls the Tokyo Stock Exchange, said in an interview with the Financial Times that in the past, companies continued to list simply because it was prestigious.
He added: “But now that is changing because of increased shareholder expectations and the desire of the stock exchanges themselves to improve corporate governance.”
The former Nomura banker, who took over as JPX CEO in 2023, implemented a radical name-and-shame regime in January to boost valuations, particularly for listed companies with price-to-book ratios below 1, meaning the market values ​​them below their book value. As of May, 34% of the Topix 500 companies had price-to-book ratios below 1.
The stock market rally, along with a weak yen and investors opting for Japan over China because of geopolitical tensions, helped push the country's benchmark stock index above its bubble-era peak in the late 1980s.
Corporate buyouts have exploded in Japan, with total value reaching $4.2 billion last year, the highest level since 2006, according to LSEG data. School operator Benesse Holdings and karaoke company Shidax are among the companies that have announced plans to go private.
Yamaji said the decision by companies not to go public or go private was a sign of good health: if they decide to do so [not list] They could come back after improving their operations and becoming stronger.
By the end of June, 1,335 of the 1,643 companies listed in the most prestigious section of the stock exchange had complied with his request to present plans to raise their valuation.
JPX updates the list monthly and surveyed investors about the steps companies are taking to develop a playbook that others can emulate.
Yamaji said he was prepared to do more to encourage improvements in corporate governance. In the second half of the year, he plans to publish anonymous case studies of companies that fail to properly address governance issues.
He also proposed new rules for the Topix index that could increase the required free float, adjusted for market capitalization, of the stocks included. That change could further reduce the number of listed companies by 40%, to about 1,200 by the second half of 2028, he said.
JPMorgan analysts said the change in inclusion rules could give small businesses [and] Mid-sized companies close to the exclusion threshold have an incentive to improve their share prices.
There are other signs of progress. Cross-shareholdings, which historically were a way to strengthen ties between companies but were criticized by investors for creating conflicts of interest and misallocation of capital, are disappearing in many sectors.
At the same time, Japanese companies are seeing a surge in shareholder activism. CLSA said there were as many activist events such as investor positions or major suggestions to companies in the first half of the year as there were in all of 2023.
Executives are under increasing pressure. During the last shareholder meeting season, 64% of corporate executives received shareholder support of more than 90%, up from 81% in 2018, according to CLSA.
Executives including Toyota Chairman Akio Toyoda and SoftBank founder Masayoshi Son have seen their support deteriorate significantly this year. Toyoda has been grappling with data scandals at the automaker’s subsidiaries and Son has been criticized for what Proxu advisers say are unfavorable returns on equity.
Undeserved re-elections are becoming increasingly rare, said Nicholas Smith, a strategist at CLSA in Tokyo.
Yamaji welcomed the development. It won't happen unless domestic institutional investors vote against the company's proposal, he said. So I think it's a positive step forward.
