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The chief of Japan’s stock exchange said fewer companies were listing “aimlessly” as a result of its corporate governance drive and rising 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 “just kept listing because it was prestigious”.
He added: “But now that is changing due to increased expectations from shareholders and because of the exchange’s own push to improve corporate governance.”
The former Nomura banker, who took over JPX in 2023, introduced a radical “name and shame” regime in January to drive better valuations, particularly at listed companies with a price-to-book ratio of less than one, meaning the market values them below their book value. As of May, 34 per cent of Topix 500 companies had a price-to-book ratio of less than one.
The exchange’s campaign has helped, along with a weak yen and investors choosing Japan over China due to geopolitical tensions, to lift the country’s benchmark stock index above its bubble-era peak set in the late 1980s.
Buyouts have surged in Japan, with the total value hitting $4.2bn last year, the highest level since 2006, according to LSEG data. School operator Benesse Holdings and karaoke company Shidax were among the companies to announce plans to go private.
Yamaji said companies deciding not to list or to go private was a “healthy” sign: “If they decide to do this [not list] they may come back after they improve their operations and become stronger.”
At the end of June, 1,335 of the 1,643 companies listed on the exchange’s most prestigious section have complied with its request to outline plans to raise their valuations.
JPX is updating the list monthly and has canvassed investors about the measures companies have taken in order to build a playbook for others to emulate.
Yamaji said he was ready to do more to encourage improvements in corporate governance. In the second half of the year, he intends to publish anonymous case studies of companies that are failing to properly address governance concerns.
He has also proposed new rules for the Topix index that could increase the required free float, adjusted for market capitalisation, of included stocks. This change could further reduce the number of listed companies by 40 per cent to an estimated 1,200 by the second half of 2028, he said.
JPMorgan analysts said changing the inclusion rules “could give small [and] mid-cap companies near the threshold for exclusion an incentive to improve their stock prices”.
There are other signs of progress. Cross-shareholdings, which were historically a way to cement ties between companies but have been criticised by investors for creating conflicts of interest and misallocating capital, are being unwound in many sectors.
At the same time, corporate Japan is experiencing an increase in shareholder activism. CLSA said there had been as many activist events — such as investors taking positions or making significant suggestions to companies — in the first half of the year as there were in the whole of 2023.
Executives are under growing pressure. During the most recent AGM season, 64 per cent of company bosses achieved shareholder support of more than 90 per cent, down from 81 per cent in 2018, according to CLSA.
Executives including Toyota’s chair Akio Toyoda and SoftBank’s founder Masayoshi Son saw their support materially deteriorate this year. Toyoda has been grappling with data scandals at the automaker’s subsidiaries and Son has been criticised for what proxu advisers say is an unfavourable return on equity.
“Unearned re-election is getting rarer,” said Nicholas Smith, a strategist at CLSA in Tokyo.
Yamaji welcomed the development. “This does not happen unless domestic institutional investors are voting against the company’s proposal,” he said, “so, I think that’s good progress.”
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