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Taking the opportunity of new market segment selection to work on increasing corporate value

2022.02.17

Yuki Kimura

Yuki Kimura

Representative Director, Japan Stewardship Forum

Taking the opportunity of new market segment selection to work on increasing corporate value
Yuki Kimura

Yuki Kimura

Representative Director, Japan Stewardship Forum

The Tokyo Stock Exchange (TSE) will undergo its market restructuring in April 2022. Each listed company is expected to independently select a market segment to which it intends to transition, taking into account the concept and listing criteria of each market segment.

This market restructuring does not mean that companies listed on the TSE First Section simply make a transition to the Prime Market. On the TSE’s website, the background that led to the market restructuring is explained. One of the underlying issues was that the existing “market divisions are not providing sufficient incentives for listed companies to sustainably increase corporate value.” Regardless of which market segment they select, listed companies are required to “strive to sustainably increase corporate value,” and expected to make the market selection an opportunity to review their efforts for enhancing their corporate value.

With regard to the market selection, it is essential for companies to select a market segment which best fits their business objectives and management policies. Investors make investment decisions depending not on the market segment which a company selected, but on the ‘attractiveness of the company’ (see note).

According to the TSE’s explanation, the Prime Market is defined as “a venue for companies focusing on constructive dialogue with global investors.” The Corporate Governance Code revised in June 2021 also requires global-level initiatives and disclosures, such as disclosures in the English language, appointment of a sufficient number of independent directors, diversity of human resources, and high level of disclosure concerning environmental/social issues, including the climate change. I would like companies that select the Prime Market to proactively have dialogue with investors from all over the world.

Meanwhile, the Standard Market is defined as the market “for companies which have sufficient levels of liquidity and corporate governance to be investment instruments in the open market”, and the Growth Market is defined as the market “for companies with high growth potential.” In all of the markets, the companies are expected, as listed companies, to improve their governance systems and advance their initiatives for sustainable growth in accordance with the Corporate Governance Code. I hope all listed companies will select a market segment which suits their characteristics, and make efforts to increase their corporate value through such activities as recognizing the cost of capital and enhancing capital efficiency, developing appropriate financial policies and delivering a return to shareholders, and respecting interests of general shareholders.

Note: In his analysis, Mr. Yoshiaki Akeda of the Japan Securities Research Institute states that there has been no statistically significant drop in stock prices of companies which selected the Standard Market on or before November 12, 2021. (Selection of new market segments by companies currently listed on the TSE First Section: interim report as of November 12 (jsri.or.jp) *Japanese only )

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