Year Three of the TSE's PBR Push: Naotaka Ikeda on What Comes After Disclosure

Contents

1. What the episode covers
2. The points I wrote down
3. 1. The push starts from a blunt sentence
4. 2. Disclosure soared; returns did not follow
5. 3. The silent half of Standard is not unwilling
6. 4. Doing it perfectly takes a lifetime
7. 5. Nishida converts “return cash” into a rate of return
8. 6. No track record, no standing to set a high target
9. 7. Both sides reject “shareholders forced us to pay out”
10. It’s been cheap forever — so why does nobody lift it?
11. Should I believe a company that promises growth?
12. Further reading
13. The one thing to take away

To know straight from crooked you need a plumb line; to know square from round you need the compass and the square.

—— Lüshi Chunqiu, “Self-Knowledge” (Warring States period; my own translation)

On 18 October 2026, Investor’s Sunday hosted Naotaka Ikeda, senior manager of the planning group in the Listing Department of the Tokyo Stock Exchange, for his third appearance, to review where the “PBR reform” launched in 2023 now stands. His numbers: among Prime Market companies, those trading below one times book have fallen from roughly half in 2023 to twenty-odd percent; 93% of Prime companies have published a plan, against 54% of the roughly 1,600 companies on Standard. Yet about 40% still earn an ROE below 8%, and Ikeda said plainly that publishing a document does not move that number. One condition to keep in mind: part of the PBR improvement rides on three years of rising share prices, so you have to separate the two before crediting the companies.

What the episode covers

The hosts are Tomoko Morimoto and Nishida, and Nishida runs money as a value investor. That gives the conversation an unusual shape: the regulator’s planner on one side, an investor on the other, both doing the same arithmetic out loud.

Ikeda joined the TSE in 2005, moved from listing examination into planning, and has spent sixteen years there building the corporate governance code, the 2022 market restructuring into Prime, Standard and Growth, and the startup listing rules. Looking back across two decades, he said, the last three or four years hold most of the density.

The PBR reform began in 2023 and was never written as a rule. Ikeda’s word for it is a request — a very Japanese approach, he admitted, adding that he dislikes stiff official language, so “please, everyone” suited him better. The content: analyse four things about yourself — PBR, ROE, ROIC, WACC — and explain how you intend to improve.

The points I wrote down

1. The push starts from a blunt sentence

Ikeda translated sub-one-times book into everyday language: set the assets a company holds against what the market pays for it, and the market says it is worth less than those assets. Follow that logic, he went on, and someone will say out loud that the company might be better off shutting down — then he added that of course it is never that simple. The message he wants delivered: a listed company runs on investors’ money, so the investor’s lens belongs among its management metrics.

2. Disclosure soared; returns did not follow

The 93% figure is handsome, and Ikeda called it real progress. In the same breath he drew the line: ROE has not improved much, because that takes higher profits and a smaller balance sheet, and no document does that work. His read is that investor expectations have climbed while delivery still lies ahead — three years in, the stage changes.

3. The silent half of Standard is not unwilling

Half of the roughly 1,600 Standard companies have published nothing. Plenty of them want to, Ikeda said, but the work is hard and they have no internal resource to study it. He put “how do we support those companies” at the top of the next agenda, and joked that the TSE launching a handy service for it is not impossible.

4. Doing it perfectly takes a lifetime

The full package looks like this: analyse where you stand, set which metric goes to what level, explain how cash and capital get allocated to get there, then show the concrete actions. If you insist on perfecting all of that before you publish, Ikeda said, it takes a lifetime. So he asked investors, and their answer changed his pitch: publish the diagnosis alone, and investors will come back with “then why not try this.” His image for it, which I liked: cheaper than hiring a consultant — a free one.

5. Nishida converts “return cash” into a rate of return

This was the part I kept thinking about. Investors ask for cash back because the company is not growing, Nishida said; put money to work at 10%, 15%, 20% and they will beg you to keep going. But when he asks about the payback period on a planned capex programme, the answer comes back as twenty to thirty years — twenty years implies roughly 5%, thirty years roughly 3%. That is where the demand for distributions comes from. His bar: growth investment needs a double-digit return; 8% does not clear it.

6. No track record, no standing to set a high target

Nishida went on to how investors read history: if past acquisitions have been loss-making ever since and the returns never arrived, then “we can do this” persuades nobody. His words: trust needs evidence, and with no evidence, sorry, maybe it should not be you — give the money back. Ikeda agreed, and sorted the explanation into three parts: what you are trying to become, including your business portfolio; how capital gets allocated to get there; and how the board supervises it.

7. Both sides reject “shareholders forced us to pay out”

Press coverage blames excess distributions on shareholders, Nishida said, and he does not buy it. Ikeda answered with survey data: CFO surveys do show companies’ own thinking and actions tilting towards distributions as the fastest way to move the metrics, and he suspects that headline figures like one times book and 8% ROE stood out so sharply that firms reached for whichever lever moved first. Investors, meanwhile, focus on how money flows into growth areas and how the business portfolio gets reshaped. Distributions are not a bad thing, he said; distributions alone are the problem. A second long-running gap: companies call their cash level appropriate, investors call it comfortable.

It’s been cheap forever — so why does nobody lift it?

If you hold something cheap enough that you keep rechecking your own maths, read Nishida’s passage slowly. Japan’s investor base skews towards value, he said, because cheap names are plentiful; plenty of cheap names means plenty of value investors. Hence the mismatch: management stands up and says “we are going to grow,” the room is full of value buyers, and the company has no record of growth investment. Neither side is lying; the sentences just do not connect.

Then he said something that sounded like a riddle until it landed: if you do not want value investors as your shareholders, do not let yourself get cheap in the first place.

What I take to my own screen: cheap does not turn expensive by itself. A stock’s buyer base is a consequence of its valuation, and what that base wants — cash out, loss-making units sold — tends to run opposite to what management wants to do. So when something looks cheap I ask one more question: how does this company leave the state of being cheap — through its own capital allocation, or only by waiting for the whole market to re-rate? If it is the latter, I am buying the index wearing a ticker.

Should I believe a company that promises growth?

This is where I slip most often: I read a clearly argued growth plan and start treating it as something that already happened. The episode hands you a cheap filter.

Start with payback. Nishida converts it straight into a return: twenty years is about 5%, thirty years about 3%. No model required — the number usually sits in the presentation, and a calculator finishes the job. If what comes out is below your own cost of capital, that project loses money for shareholders however good the slide looks.

Then the record. That is Nishida’s ruler: the money spent over the last three to five years — what did it grow into? Is the acquired business still bleeding? How is utilisation on the last capacity expansion? A company with no record asking you about the future is asking you to substitute trust for evidence.

Then supervision. Ikeda put the board third in his list of three, which I first read as boilerplate governance language. His point sank in later: investors cannot watch management continuously, so somebody inside has to. Without a board that asks whether the payback has been run, the first two layers of analysis expire quickly.

How I use it: if any one of the three layers fails, that plan does not enter the numerator of my valuation. At most it becomes an option — nice if it pays, fine if it doesn’t.

Further reading

• Investor’s Sunday, 18 October 2026, with Naotaka Ikeda of the Tokyo Stock Exchange’s Listing Department planning group; hosts Tomoko Morimoto and Nishida. The corporate governance code gets its own episode next week.
• The TSE’s materials from 2023 onward on “management conscious of cost of capital and share price,” plus its aggregation of company disclosures.
• The Japanese Corporate Governance Code itself, whose latest revision raises allocation of management resources and investment in growth areas to a headline topic.

One detail worth keeping: slides were banned for the whole hour. “No slides on this programme,” the host said, then added a ban on PowerPoint, colours and sparkly lettering. Ikeda had to describe the PBR-versus-ROE quadrant chart in words and let listeners draw it in their heads. Afterwards the host said she finally understood why the reform needed to exist at all. Take the tool away and the sentences get clearer.

The one thing to take away

The whole hour carries one idea: measure where you actually stand, and only then can anyone discuss it with you. Ikeda’s line about perfection taking a lifetime describes the failure mode exactly — people stall not because they refuse to change, but because they wait for a complete plan before opening their mouths, and spend their lives preparing. His advice was to publish the diagnosis and let the rest grow out of the conversation.

Here is something I tried, offered rather than assigned. Pick one thing you have talked about for a long time with nothing to show (getting fit, changing jobs, booking your parents’ health checks all count). Skip the plan and write a single number: how many times you actually did something about it in the last three months. Then show that number to a friend who tells you the truth, and explain nothing. Mine came out as 1, when I had assumed five or six; what that friend said next was worth more than three months of my own thinking.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.