Drawing on cases in which the number of listed companies in the U.S., U.K. and Germany fell by 40% to 50% following governance reforms, this article examines from a practical perspective how Japan’s market and governance reforms are contributing to a decline in the number of listed companies.
Following a report by The Nikkei, the number of companies delisted from the Tokyo Stock Exchange has reached a record high for the third consecutive year, while the number of companies confirmed for delisting by year-end has reached 128. The number of listed companies stood at 3,705 at the end of August, down 4% from its peak at the end of 2023 and the lowest level in 7 years. The trend includes a rise in going-private transactions and MBOs involving investment funds, as well as companies being delisted after transitional measures for continued listing criteria end and they fail to meet the requirements.
Looking at the experience of the U.S. and Europe, the number of listed companies has declined significantly following governance and market reforms. The U.S. experienced tighter requirements under the Sarbanes-Oxley Act and stricter exchange listing rules, the U.K. saw both the expansion of code-based governance and regulatory easing, and Germany pursued market restructuring and tighter listing regulations. Analyses indicate that in these countries, tighter regulation encouraged smaller companies to exit, while the number of listings fell and market quality improved at the same time.
Japan’s distinctive factors include the large number of parent-subsidiary listings and the presence of controlling shareholders centered on founding families. Although the number of parent-subsidiary listings has fallen to 215, it remains above 200, and the potential for going-private transactions through founder-led MBOs is also high. Companies that remain listed will be expected to fulfill their accountability to shareholders, and reforms are likely to continue in order to maintain the proper functioning of the capital markets.
In conclusion, the decline in the number of listed companies should be viewed not as a side effect of reform, but as the result of reforms beginning to work. The downward trend is expected to continue over the next decade, raising questions about the appropriate number of listed companies in Japan’s market and the proper role of a public listing.