The goal of our research is to examine how the enhancement of corporate governance positively affects the value of a company. We have analyzed it in different angles such as compensation, ex-CEO, number of independent directors and other board practices, and so forth. Also, we believe that corporate actions reflect how a board of directors thinks corporate governance seriously and realizes the board practice as actions really. This is also crucial factors in analyzing corporate governance particularly companies in Japan, as local issues such as cross-holdings would not be well analyzed by just focusing on board practices.
This month, we highlight capital allocation. The policy of a company would depend on future growth and value of a company for the long-term. Therefore, for many investors, this is a very important topic. However, for the analysis of companies in Japan, it is not easy to gather data for all companies and there are a number of problems. As a proxy of capital allocation, we analyze it in 3 factors: (a) cash holding, (b) dividend policy
The table below shows the correlations of 3 factors to Tobin’s Q. Cash Holding score correlates with Tobin’s Q significantly negatively. A company that holds excess cash tends to be traded at higher share price, as such a company tends to generate more cash on its higher return (our research shows
Dividend Policy score correlates with Tobin’s Q significantly negatively. A company that pays little dividends tends to be traded at higher share price, as such a company would like to retain cash for future investment, or a company that suffers poor profit would result in higher dividend payout, maintaining its cash dividend due to its stable dividend policy.
As for the 3rd factor, Equity Cancelation score correlates with Tobin’s Q positively (P-Value is 0.06, which is slightly larger than 0.05 but should consider almost significant in statistic). A company that cancels its treasury shares more frequently tends to be traded at
In conclusion, investors who
Please see detail in the following link.