Japan Inc. Faces New Disclosure Rules Amid Complaints

The Tokyo Stock Exchange is looking to come up with new rules by the end of the year urging Japanese companies to respond to rumors and speculation in a concrete manner to address complaints from overseas investors.

The exchange has been told by investors, especially from outside the country, that company statements filed to the bourse in response to local media reports aren’t clear, Taisuke Maruo, a senior manager at the TSE’s listing department, said in an interview in Tokyo. The exchange is studying how responses can benefit investors, he said.

The move is part of a push by the exchange, which last week became the world’s third-biggest bourse by listed companies, to boost investor confidence in the face of challenges from rivals in faster-growing Asian economies. Investors outside Japan account for almost 70 percent of trading by value on the Tokyo bourse.

“This cleaning up, or attempt to improve governance, is really the core part of Abenomics,” Jesper Koll, head of Japan strategy at JPMorgan Chase & Co. in Tokyo, said in an interview, referring to Prime Minister Shinzo Abe’s efforts to kickstart Japan’s growth and modernize the economy. “What you are looking for in terms of Japan is that it does away with its old insider, cliquey-group thing and begins to operate in a free and fair way -- so it actually becomes a democracy.”

Kawasaki Heavy U-Turn

The discussion over the way Japanese companies respond to media reports or other forms of speculation has been reignited by a u-turn in merger statements by Kawasaki Heavy Industries Ltd., Japan’s second-biggest maker of heavy machinery. The Financial System Council, which advises the Financial Services Agency, in December compiled a report saying guidelines should be considered to require companies to disclose information in a clearer manner after a media report.

“In order to aim to be an international bourse, it’s not appropriate to keep the current style of corporate disclosure,” Etsuro Kuronuma, a professor at Waseda University’s law school and a member of Japan’s Financial Systems Council, said in an interview in Tokyo. “Companies should disclose whatever they can when a scoop comes out.”

At issue is wording such as “nothing has been decided” or “the report isn’t what we announced,” which are typically found in statements filed to the Tokyo Stock Exchange by Japanese companies after the reporting of market-moving news.

Such terminology may be interpreted by some to signal confirmation of a report while others may take it as a denial, according to the TSE’s Maruo. Overseas investors have told the exchange they’re dissatisfied with the ambiguity of statements of this kind, he said.

Investor Confusion

The responses are “like a dialect that can only be comprehended by corporate communications departments and the press,” Hisao Miyagawa, an associate professor at Osaka City University who formerly worked at the investment banking division of Nomura Securities Co., said in an interview. “The expression and wording they use must be accurate and understandable to everyone,” he said.

The Financial System Council, at a meeting on Nov. 27, discussed a case where it said investors were potentially misled after a company issued comments saying it wasn’t the source of a report, only to later release a statement confirming the news, according to a transcript of the council’s discussion posted on its website.

Companies should respond to such a situation by disclosing as much information as possible in a timely manner as long as its interests aren’t hurt, Waseda University’s Kuronuma said.

Shareholder Interests

The interests of shareholders aren’t being considered enough by company executives, Atsushi Saito, who heads Japan Exchange Group Inc., a holding company formed on Jan. 4 through the merger of the Tokyo and Osaka bourses, told reporters on June 18.

In the case of Kawasaki Heavy, the Kobe-based company last month fired its president as the company scrapped merger talks with Mitsui Engineering & Shipbuilding Co. The executive, Satoshi Hasegawa, two months earlier had denied the companies were in discussions.

Possible action against Kawasaki Heavy is still under consideration, Naoya Takahashi, a spokesman at Japan Exchange Group, said today by phone.

Kawasaki Heavy’s case has sent a message to the public that the voices of investors and shareholders are important, Osaka City University’s Miyagawa said.

The Tokyo Stock Exchange this week added 1,100 stocks from the Osaka Securities Exchange as the two merged their cash-equity trading platforms.

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