Key facts
- Shares of Japanese companies with significant family control have underperformed.
- Corporate governance reforms are spreading across Japan.
- Record corporate actions, including M&A, are occurring.
- Japanese companies' net profits have reached record highs for five consecutive years.
- The Tokyo Stock Exchange has urged companies to focus on capital efficiency and stock price.
Shares of Japanese companies with significant management control or major shareholdings by founding families have recently underperformed. This trend is attributed to the fading advantages of long-term planning and rapid decision-making, as corporate governance reforms gain traction across the country. These reforms, rooted in the 2014 Stewardship Code and 2015 Corporate Governance Code, aim to improve capital efficiency and profitability.
The Tokyo Stock Exchange has explicitly urged listed companies to focus on cost of capital and stock price, with a significant percentage of companies on its Prime and Standard sections disclosing plans for improvement. These reforms also target the protection of minority shareholders and the unwinding of cross-shareholdings. The market has responded with a record number of corporate actions, including mergers and acquisitions, tender offers, and dividend increases, signaling a heightened awareness of capital efficiency among companies.
Japanese companies have seen their net profits hit record highs for five consecutive years, and the adoption of AI technology is accelerating to boost productivity. The Japanese stock market has outperformed global markets for the past two years, with average daily trading volumes doubling. This positive momentum is driven by structural shifts, including the economy's emergence from deflation and increased capital expenditures by corporations.