Average CG rating score for the 1,800 Japanese companies slid 3.6pt to 50.01 for December 2018 from 53.61 for the previous month.
The decrease was mainly due to the revision of “Stock Holding Score.” The score of the criteria was previously based on the formula, Non-trading purpose stock holding / Sales. Now the criteria are scored based on Non-trading purpose stock holding / (Total Assets – Cash equivalents). The score had been scored on the ratio of the dollar amount of non-trading purpose stock holding divided by a company’s revenue or sales, as many of the companies in this country state that they hold non-trading purpose shares including cross-holding shares for the purpose of securing or increasing sales or profits from the counterpart companies for the long term. However, the explanation is not enough to make investors understood in many companies. From the point of view of investors/shareholders, they are more likely to focus on future return on the effective use of capital — whether the capital should be used for stockholdings or reinvestment in the business that might better enhance shareholders returns. Therefore, after close analysis of the past 3 years, we changed the formula of the score from this month.
The chart above shows the distribution of the number of companies based on Non-trading purpose stock holding / (Total Assets – Cash equivalents). 337 companies out of 1,800 hold non-trading-purpose stocks amounting
Aki Matsumoto, CFA
METRICAL INC. http://www.metrical.co.jp/