Market News

Apr. 14, 2023 TSE Action on Cost of Capital-Conscious Management and Other Requests


In January 2023, Tokyo Stock Exchange, Inc. (TSE) identified and published actions that it would be encouraging listed companies to take in response to the discussions of the "Council of Experts Concerning the Follow-up of Market Restructuring." TSE has now compiled specific details on the following three of those actions, and notified them to listed companies on March 31:

  • Implementing management that is conscious of cost of capital and stock price (Prime and Standard listed companies)
  • Improvements in dialogue with shareholders and disclosure regarding this (Prime listed companies)
  • Appropriate use of the "explain" of "comply or explain" to contribute to constructive dialogue (TSE has provided key points and examples of this)

These documents summarize matters considered important for achieving sustainable growth and enhancing corporate value over the medium to long term, and while they are not mandatory under TSE rules, we request that listed companies proactively implement them in consideration of the expectations of investors.

In addition, we hope that institutional investors, who carry out the dialogue with listed companies, will engage in constructive dialogue based on the disclosures and actions of listed companies in response to the above requests, with the aim of encouraging their sustainable growth and enhancement of corporate value over the medium to long term.

Action to Implement Management that is Conscious of Cost of Capital and Stock Price icon-pdf
Better Dialogue with Shareholders and Related Disclosure icon-pdf
Using "Explain" to Contribute to Constructive Dialogue icon-pdf
Council of Experts Concerning the Follow-up of Market Restructuring

Key Points of Action to Implement Management that is Conscious of Cost of Capital and Stock Price

  • From the viewpoint of implementing management that is conscious of cost of capital and stock price, TSE requests that listed companies conduct a series of actions on an ongoing basis. This starts with gaining a proper understanding of their cost of capital and profitability based on the balance sheet, and continues with analyzing and assessing the current situation around these and the market valuation at board meetings, preparing and disclosing plans for improvement, and then using dialogue with investors to update them on the progress of these efforts. Note: This request targets all listed companies on the Prime and Standard Markets.
  • Through conducting these actions, it is expected that, based on the basic management policy established by the Board of Directors, the management team will take the lead in appropriately allocating resources with sufficient consideration of cost of capital and profitability. This could be by pushing forward initiatives such as investment in R&D and human capital that leads to the creation of intellectual property and intangible assets that contribute to sustainable growth, investment in equipment and facilities, and business portfolio restructuring.
  • While share buybacks and dividend increases are considered effective means of improving profitability, if shown as such by the company's analysis of whether the balance sheet effectively contributes to value creation, TSE is not necessarily expecting companies to use only these or solve issues with a one-off response. Efforts are expected on a fundamental level to attain profitability in excess of cost of capital on a sustained basis and achieve sustainable growth.
  • ・Since analysis and discussion of the current situation must be carried out sufficiently before planning and disclosure can begin, TSE is not specifying a timeframe for the start date of disclosure, but requests as prompt a response as possible.


Listing Department