Abenomics Requires Enhancement of Corporate Value via ROE

Chapter

Abstract

This chapter presents the underpinnings of the book’s message. It addresses the issues of Return on Equity (ROE) in general and answers; What is ROE? Why is the ROE of Japanese firms the world’s second lowest? What is the benefit for investors and corporations of improving ROE? The chapter also correlates total shareholder return (TSR) and ROE, which investors regard as an alternate index of returns. FACTCAST points out that during the past five years the 5.6% ROE of Japanese firms is second lowest in the world behind Greece. Defining ROE as margins × leverage × turnover, DuPont attributes Japan’s low ROE to margins that are half those of US firms even though leverage and turnover resemble those in other countries. The book’s survey results show that improved ROE is a priority for investors: the 2014 pre-CG (corporate governance) reform survey indicates 62% of foreign investors and 48% of Japanese investors believe ROE is a crucial subject for dialogue with corporations. Post-CG reforms, 42% of foreign and 39% of Japanese investors hope the CG reforms will improve ROE. Over three decades, the TSR of Japanese corporations has averaged 6% and ROE 5%, whereas both averaged 12% in the US and Europe. This chapter closes by articulating the benefits of improved ROE for investors and Japanese companies and shows they can be synchronized to enhance corporate value.

Keywords

ROE PBR PER TSR DuPont equation 

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Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.EisaiBunkyōJapan

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