Nearly half of the companies on the Tokyo Stock Exchange's (TSE) prime section have responded to a call to disclose plans to improve capital efficiency, the bourse said on Monday, as it released for the first time a list of those who had complied.
The list, which did not include some of Japan's biggest and most influential companies such as Toyota Motor (7203.T) and SoftBank Group (9984.T), marks the culmination of the bourse's push to nudge firms to improve governance and investor returns.
Some 40% of the 1,656 companies on the exchange's prime section have publicly disclosed plans, while another 9% are considering such measures, the bourse said.
Optimism about the latest initiative, first announced in March last year, had helped propel the Tokyo market to its highest level in more than three decades last year.
"The headline figures are impressive," said Govinda Finn, a governance researcher at the University of Kobe. "You have to remember the start gun was fired in March last year, and many, many Japanese companies are going from a standing start."
The list, which the TSE will update monthly, will effectively put pressure on companies to fall in line and disclose their plans, experts said. That could help spur the reform of a market where nearly half of listed firms trade below book value, they added.
The number of firms with disclosed measures shot up from the TSE's tentative survey in July, which saw only 20% of prime-listed companies had made such disclosure.
The TSE has set no deadline, saying it was not asking for quick fixes but long-term strategies to improve valuations. But a TSE official said in a briefing the bourse hopes all companies comply around next March, a year since the request was made.
The spotlight is now likely to be on companies not on the list rather than those on it. The absence of Toyota is notable, as it is Japan's biggest company in terms of market capitalisation and influence.
Toyota said its plan for "growth with stakeholders" was effectively the same as what the bourse was requesting, while SoftBank said it had separately announced a share price-conscious management strategy.
"It's now a question of whether the companies will be proactive or not. Those that are proactive will be evaluated more highly in the future," Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said.
"We may see a difference in stock price movements between companies that disclose and those that do not going forward."
The TSE's move has made companies scramble to review the use of capital, sparking a slew of share buybacks, unwinding of cross-shareholding and some management buyouts that take companies private to escape burdens of being listed.
Morgan Stanley MUFG Securities in a report to clients last week said those considering measures may surprise on the upside with capital return announcements during the upcoming earnings results season, adding that the TSE's reform initiatives are "a key aspect of our positive view on Japanese equities."
Experts, however, said the success of the reforms would hinge on companies actually changing.
"There is a big difference between saying you have a policy to consider cost of capital, and actually implementing it," said Nicholas Benes of the Board Director Training Institute of Japan and a veteran governance expert.
"For many firms, the best litmus test will be whether they move to sell non-performing business units or not."
