Will corporate governance be big in Japan?

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New research from Standard Life Investments, the global investment manager, suggests that improvements in corporate governance at Japanese companies have the potential to raise the value of the Japanese stock market by 15% to 30%.

Prime Minister Abe’s administration has announced a range of policies designed to embolden corporate risk-taking – one area with high prominence in this growth strategy is boardroom reform. In the latest edition of Global Perspective, Govinda Finn, Senior Japan Analyst and Chris Faulkner-MacDonagh, Markets Strategist, Standard Life Investments, examine whether this governance reform will be the catalyst for a wider revitalisation of the Japanese economy.

Govinda Finn, Senior Japan Analyst, Standard Life Investments, said: “Many global investors have moved heavy or overweight in Japanese equity markets since the Abe government gained power. Yet Japan faces a growth conundrum. With a declining population and high levels of economic development, the prospect of future growth led by capital accumulation is low.

“To ensure that global investment in Japan becomes a longer term phenomenon, rather than a short term tactical trade, efforts to improve the capital efficiency of Japanese companies, and raise the return on equity for shareholders, become ever more important.

“Key engagement and governance policies for shareholders and institutional investors to monitor for progress over the coming months are: increasing board independence; expanding investor relations efforts; M&A activity; return on equity strategies; shareholder voting practices; restructuring of business operations; plus environmental and social policies.

“There is hope that a transition to a more market based engagement approach will encourage businesses in Japan to make better investment decisions and boost shareholder value. This approach, when combined with other initiatives in the nation’s revitalisation plan such as trade liberalisation and labour market reform, may unlock further productivity growth.”

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